Consolidation Is the Logical Next Step in the Industry’s Evolution

Over at the National Journal's Transportation blog site, the question of the week is:  “Should Continental and United Be Allowed to Merge?  Lisa Caruso, the blog’s editor asks:  “What do you think of the proposed merger? Will it benefit the two airlines? What about customers and the airline industry as a whole? Should the Justice Department approve it? 

To date there have been responses to the question from Robert L. Crandall, former Chairman and CEO of American Airlines; Carol J. Carmody, formerly the Acting Chairman and Vice Chairman of the National Transportation Safety Board; Kevin Mitchell, Chairman of the Business Travel Coalition; and yours truly, William S. Swelbar, the author of www.swelblog.com. 

I urge you to read the comments as they are diverse and even “agnostic” toward the proposed merger of United and Continental.  Swelblog readers can comment directly to the National Journal Transportation blog.

Below are my comments to the question posed by the National Journal’s Ms. Caruso.

After decades of destructive competition, consolidation is the logical next phase of evolution in the U.S. airline industry.  This, after all, is an industry that lost $60 billion over the past decade – making folly of the goal of the 1944 Chicago Convention in charging the International Civil Aviation Organization to “prevent economic waste caused by unreasonable competition.” 

Instead, the U.S. domestic passenger market produced plenty of economic waste over the past 32 years, affecting shareholders, lenders, employees and most other stakeholders.  The only clear winner from the industry’s singular strategy of adding uneconomic capacity was the consumer.

Today, the legacy network carriers are focusing away from the bloodletting in the domestic market with an eye toward international flying. Too often, regulators and legislators and even some analysts see the global airline industry as somehow U.S.-centric.  It is not.  In aviation, the U.S. is one piece of a big puzzle that is influenced by global economic interdependencies, just as the U.S. economic recovery could be affected by events in Greece and possibly Portugal and Spain.

For the legacy carriers, this round of consolidation is more about preparing to compete with the world’s other big carriers as much as it is about competing with Southwest or AirTran or jetBlue.  That’s why so many are shaping their networks and alliances to attract domestic and international bound passengers.   The footprint established by the low fare carriers is now national in scope, while the fares they charge should be considered as much of a  contributor to that fact that many smaller communities are losing air service as is the economy and the price of oil.

The 1978 Airline Deregulation Act clearly accomplished the goal of delivering safe and affordable air service to the masses.  Today, airplanes are packed with flyers paying, on average, 55 percent less for a ticket when adjusted for inflation than they paid in 1978.  Why?  Because most U.S. airlines responded to deregulation in the 1980s and 1990s with a capacity-led business model that made cost control imperative.  Some of today’s cost controls can be found in the outsourcing of maintenance or downguaging the size of airplanes to adapt to the realities of the marketplace.  

For decades, the only way the industry knew how to grow revenue was to grow capacity.  Airlines used the tools and methods that had their roots in regulation and were focused on estimating market share.  Fundamental to that analysis was the belief that growing revenue meant the need to grow capacity – and most airlines did, even before demand warranted it.

Everybody focused on “screen display.”  Statistics showed that if an airline’s flight did not appear on the first few CRS screens of available flights in a market, that airline didn’t get as many bookings. The more sophisticated the global distribution system (GDS), the more important electronic “shelf space” became.

Only recently has the industry worked to rid itself of too much capacity brought about by this market share mentality – one result of the role of CRS/GDS bookings that made an airline seat a commodity.

Today’s consolidation is working to undo the capacity-added wrongs of the past. Consider labor.  For too long, airlines carried uneconomic capacity, employed too many people and signed on to labor contracts that created unreasonable expectations for airline employees.  That steady growth also created expectations that airlines were somehow required to serve smaller communities, even when demand did not warrant service and those routes could not be flown at a profit.

Much of this is still true. U.S. airlines have used bankruptcies and other restructuring efforts to cut capacity and increase productivity, but many did not go far enough.  The real catalyst to capacity discipline was $147 oil.  And that capacity discipline needs to continue if the industry is ever to get to a period where it earns at least its weighted average cost of capital. 

Unlike other rounds of consolidation that focused primarily on network scope, scale, revenue and cost synergies, this round is different.  Now the industry is looking at the balance sheet. The market rewarded Delta following its acquisition of Northwest with a market capitalization that exceeds that of United, Continental, American and US Airways combined.  Consolidated carriers promise more stability to employees, shareholders and communities that benefit from the combined strength of the respective balance sheets.

Capital has smartened up.  We do not see as much creative financing or unsecured lending as was common in the past.  Assuming successful mergers, combined airlines will be able to raise capital more easily, carry their labor costs and offer passengers more choice of routes and destinations. 

The U.S. market should not fear the “end to end” network consolidation like Delta – Northwest and the proposed United – Continental merger.  The market has demonstrated time and again that where competition is vulnerable, a new entrant will exploit that vulnerability.  Where there are market opportunities, there will be a carrier to leverage that opportunity.  And where there is insufficient capacity, capacity will find the insufficiency.

Simply put, the legacy carrier model of the 1980’s and 1990’s does not work in today’s environment. Consolidation is a logical step to position airlines in a highly fragmented industry to better weather the financial challenges that have caused years of economic pain and a rising tide of red ink.

More to come.

Sacred Cows and Fatigue

Last week, I was in Boston listening to the students in MIT’s Airline Industry class make group presentations on six US airlines.  It is always refreshing to hear the analysis, reflection on strategies and recommendations from really smart kids who aren’t burdened, like me, by three decades of taint or cynicism. 

Do We Have a National Aviation Policy?

The student presentations got me thinking about the role of national policy on the U.S. airlines. Michael E. Levine, now a Distinguished Research Scholar and Senior Lecturer at  the New York University School of Law, wrote an op-ed in the December 1, 2009 Aviation Daily titled:  “We Have a National Aviation Policy.”  Many will remember Levine as one of the minds behind and framers of the Airline Deregulation Act of 1978.  Levine went on to serve in numerous senior management positions at a number of airlines along the way.  To the serious industry observer, Levine is a must-read.  You may not always agree with his viewpoints, but you always know that the work will be well researched, thoughtful and provocative.

Levine’s Aviation Daily piece has its roots in the recent comments by former American Airlines CEO Robert Crandall and Business Travel Coalition President Kevin Mitchell suggesting that the U.S. lacks an effective  aviation policy.

Levine disagrees:  “Our government has an excellent aviation policy:  continuously improve safety, promote environmental goals, maintain consumer choice, and allow the general public access to a system not run specially for the benefit of stockholders, banks, elite purchasers, aircraft manufacturers and workers more privileged than they are,” he writes. “We even have a mechanism in place to make sure that service is provided where social policy demands it and the market won’t pay for it.”

In Levine’s view:

• Profit is the job of managements and shareholders, not government
• Air transportation must be safe
• Government’s job is to ensure that aircraft are safe, not new
• Airline wages and career options should be no more or less a government concern than they are for workers in general
• US airlines should compete in world markets, and our government should eliminate impediments put in their way by other governments
• The terrible accident in Buffalo raises issues about pilot experience, fatigue and past performance that underscore the need to revisit negotiated seniority rules and pay scales that pay pilots more to fly bigger aircraft, leaving some of the least experienced pilots to do some of the most demanding flying
• Pilot fatigue comes not only from duty assignments but also from lifestyle choices that have pilots commuting to work from homes that may be thousands of miles from their jobs.

I encourage readers to find a copy and read Levine’s piece in its entirety.  It is good.  And of course many of the ideas are those espoused here at swelblog.com.  If I have a quibble at all with Levine’s piece, I would say that the US government and the narrow-minded thinkers in Washington who are in power positions on committees overseeing US commercial aviation produce at least as many impediments as do other governments. 

Levine’s analysis is also well timed to the formation of Transportation Secretary Ray LaHood’s Blue Ribbon panel to study the industry. A mind like Levine’s would serve the industry well because unlike Crandall and Mitchell, he does not have a dog in the fight.  Furthermore, his writing reflects the need to cut to core issues that govern US aviation today and fix the things don’t work – even if those things include some sacred cow(s).

Pilot Fatigue

Last week, FAA Administrator Babbitt testified before the Senate Commerce Committee’s Aviation Subcommittee on a variety of safety issues including pilot fatigue. As I have written here many times, there can be no productive discussion on pilot fatigue until the issue of commuting is included in that discussion. 

Until last week, any Congressional testimony fatigue or flight time/duty time regulation changes centered on the work of an FAA Advisory panel that met during July and August to recommend changes to existing rules.  But that committee -- comprised of labor, management and other stakeholder groups  -- decided that commuting was “outside the boundaries” of their mission.  So it is left to Babbitt and the FAA to seek comment on commuting with respect to the proposed rule changes.

Commuting, of course is among the industry’s most sacred cows. I don’t know how many airlines would be willing to go first in telling a pilot, or a flight attendant, that they cannot commute or that they have to live within X miles of their assigned domicile.  Clearly,  Babbitt is not convinced that commuting is the only major factor in the fatigue question. So for now, Babbitt’s mantra is the right one:  Show up fit to work.

But commuting is a management issue as well.  Back in the day when I was flying, pilots were paid moving expenses and had the company buy their house (in the event it could not be sold) if they were displaced to another domicile.  As the industry began to grow and merge and create new hubs and thus new crew domiciles, the moving expense issue was a big one for companies to consider.  Lo and behold, it was one of the early concessions airlines sought from pilot contracts in their efforts to cut costs and the industry structure began transforming itself.

I am glad that we are looking at fatigue and flight time/duty time regulations with a learned eye to make fixes where science suggests fixes need to be made.  What doesn’t make sense is this hue and cry that fatigue is an issue because airlines have worked to improve productivity by getting their pilots to fly an additional eight hours a month.

Liquidity, Labor and Legislation

Earnings season is upon us and we all anxiously await guidance from airline executives on a forward looking basis. On the eve of past earning seasons, cues from industry executives have mostly used words starting with “C.” This time around, I want to hear commentary on topics starting with “L” namely:

Liquidity

I believe that we are nearing the final chapters for one carrier, possibly two. I do not know which they might be, only that there are not enough rabbits left in the hat for every airline to survive in this market.

Why?

- Because labor will not be the internal source of capital that it has been in the past;
- Fuel costs are uncontrollable;
- Maintenance repair and overhaul will not offer hundreds of millions of dollars in savings in the future as most airlines already have outsourced as much of that business as they can;
- Distribution costs already have been wrung out of the system at every airline;
- Airport costs ebb and flow with the level of traffic;
- Aircraft rentals and other vendor contracts are largely fixed;
- Commitments made to feed providers are contractual;
- Interest obligations are known.

In other words, there just is not much room on the income statement for airlines to maneuver.

In the U.S. airline industry, we could be fast approaching the tipping point– the critical juncture in an evolving situation that leads to a new and irreversible development. With credit tight, would you put money into an industry that has historically destroyed capital? Would you bankroll an industry that has few opportunities to reduce costs in a weak economy? Would you lend money to companies facing labor strife? To get to the bottom line, would you invest in a company in an industry that has never made a dime? In this economy, there may not be many takers.

The airline industry is not special. Like other industries, it needs a plan to earn at least its cost of capital and compete for a limited pool of funding. And those who hold the capital will likely look first toward companies and industries that reward their capital providers more than once or twice every two decades.

I share the belief of some others that the domestic market may be stabilizing, but think this recovery will be an uneven one. The real driver may be the international market and the global economy’s interdependencies that I do not pretend to fully grasp. So I have concerns about American, Continental, Delta and United. Asia has been troubled in certain spots for nearly a decade now. Europe was a strong performer while the US industry faltered, but now shows signs of weakness across the continent. And Latin America’s economy appears to be similarly troubled.

Beginning today, when American leads the first quarter’s earnings parade, I will be all ears. Because what I see for some is troubling. Others will benefit from the weakness.

Labor

The recalcitrant unions at American remain the lead story as outlined in Mike Esterl’s piece in an April 14 Wall Street Journal entitled: Labor Negotiations Cloud Outlook for American Airlines Parent. American is being joined by United which opens negotiations with all of its major unions this month. Between the two, there will be plenty to read and write about as union leaders at each airline continue to promise outcomes to their members that could not be met even in the best of times. Real leadership would instead recognize that no airline can long survive overpriced labor contracts that put them at a competitive disadvantage in the industry.

I read somewhere this week that the United Airlines flight attendants union is promising its members a new contract that will give them industry-leading pay rates. The American pilots union is taking an old page out of the Continental pilots’ playbook that “the loan is due” to gain back pay levels the industry no longer supports. The problem is that concessions granted or forced in past years were a necessary correction of market costs that had risen above the industry’s ability to absorb those costs. Those concessions were never a “loan” and there isn’t a labor contract in the industry that includes terms on rates or principal that would make them so.

American has a first – at least in my recollection – in having all of its negotiations in mediation at the same time. United could be in the same place as date certain contractual understandings are in place to file for mediation in the event no agreement is reached. As for US Airways and the labor unions that have not been able to complete an agreement following the airline’s merger with America West, I have given up trying to apply logic to that situation. The damage done to employees is done and that was the work of the unions involved.

OhhhhhhBama – Release Me (And Let Me Love Again)

The Allied Pilots Association, which represents American pilots, has been on an ill-conceived, death-march strategy that the leadership somehow believes will get them closer to a release from mediation. Negotiations began in September 2006 -- a long haul by any perspective – but the clock was reset when a new union president, Lloyd Hill, was elected in June 2007. I don’t pretend to know the union’s strategy in these negotiations beyond what plays out publicly, but I do know that the Hill administration has made contract demands that are so far removed from reality that I question whether he is really representing the best interests of AA pilots.

With each union that files for mediation, my guess is the American pilots move yet another group down the pecking order for a release and thus the ability to engage in Self Help. The APA should be taking a clue from the Obama administration and its dealings with the UAW. The UAW’s Gettelfinger demonstrated a real understanding of that industry in balancing the interests of his members with the economic reality, in part by working to preserve wages and benefits of current employees by negotiating lower rates for new employees. But even that didn’t change the reality that, as the economy continues to collapse; the UAW is still not close to having moved far enough from work rules and wage rates that put the Big Three at a huge cost disadvantage in the global auto industry.

Finally, to the pilot leadership, I can’t imagine what possible benefit you would gain through strikes or other work actions that few airlines could survive. First, there is little chance the White House would allow a union at a carrier the size of American or United or Continental to actually go on strike and potentially threaten the economy’s ability to recover. No matter how labor friendly the new administration is, I believe that any union will need to make a pretty powerful case to the White House as to why a strike is more important than the recovery of the United States economy. Any union that can make a case that restoration of inflation-adjusted wages can be easily paid for by the airlines may have a chance, but that’s going to be a tough case to make.

I refer to the American pilots union in this example, but it applies to any large airline. Too much stimulus is potentially threatened by a strike in an industry as crucial to commerce as the airline industry.

Here’s my bet on where pilot contract negotiations will end up at the legacy airlines: With the Delta deal done under the leadership of ALPA’s Captain Lee Moak, the remaining negotiations will be completed in the following order: 2) Continental; 3) United (following the lead taken in the CO negotiations); 4) US Airways (assuming a final resolution to the seniority issues scheduled for the end of April); and 5) American (and perhaps only after a “leadership” change takes place.)

Congrats to Southwest for having put to bed their negotiation with multiple groups at reasonable rate increases.  With little management distraction, the airline can focus on finding needed revenue.

Legislation

Finally, there are legislative issues important to this industry that deserves color in the upcoming earnings calls. First and foremost is a reauthorization bill that will fund the FAA’s activities. A committed industry must find a way to fund enhancements to the air traffic control system. Everyone in the industry recognizes the need to make changes. Now we’re just fighting over who will pay for them. It’s time to move forward and for the various factions to present a united front on "who will pay what".

Second on the legislative front is Oberstar’s bill to evaluate airline alliances every three years -- a clear attempt to make the formation of these alliances increasingly difficult. Never did I think I would write that former AMR Chairman Bob Crandall and Minnesota Congressman Jim Oberstar are on the same page regarding a controversial commercial issue, but I am - and I am even writing it in the same sentence.

In an interview with the National Journal’s Lisa Caruso, Crandall actually says: “In my view, an objective observer would have to look very hard to find a way in which alliances have benefited consumers.” His remarks point to the “dominance” of slots at Frankfurt and Paris by the aligned carriers. Is this any different than the structure "Crandall built" in the US domestic market where carriers were reluctant to offer service between the hubs of a competitor? Absolutely not. Instead, the competition offered a menu of one-stop competing services that presented the consumer a choice.

Are we not to acknowledge that the air travel consumer in Toledo benefited significantly from the Northwest – KLM alliance that offered seamless connecting service to Amsterdam and points beyond? Wasn’t it Crandall that coveted a partner in Brussels to partake in these very same traffic flows? Does Crandall really believe that Detroit and Minneapolis would have multiple non-stop services to Amsterdam if not for the alliance? Does Oberstar really believe that Minneapolis would have the international service to Europe it does without the network of KLM and now Air France on the other end?

Crandall even makes the point that the foreign carriers have been the beneficiaries at the expense of US carrier interests. Crandall is the one that brought the concept of time-of-day departures to the networks of the nation’s carriers. This alone has contributed to a significant amount of the uneconomic capacity that pervades the industry today. Do we really think that all of the departures that “Bob built” were good for anyone? If we did not have alliances to begin filling all of the ill-conceived capacity deployed in Crandall’s domestic network, then we would have even fewer US carrier domestic departures than we do today – even after all of the cuts.

For a guy I admired, Crandall’s comments leave me perplexed, confused and confounded. Some of his fixes are on point, like a changed labor structure. But Crandall should accept some of the blame for an industry struggling today as his pit bull instinct toward competition became a blueprint to build an industry too big. Or maybe he should explain to airline employees that his blueprint caused an industry to hire too many people that now believe they are entitled to wages higher than the industry can pay.

More to come on this one.

10 Airline Issues That Have My Attention

Note: at 634pm I made some minor edits to the orginal post. Immediately after posting, a personal issue arose that required immediate attention. I apologize.

But before we go there I will share my favorite headline of the week gone by: Congress, get off your gas, and drill!

1. Crandall

It is interesting to me that Gordon Bethune has gone quiet for the most part and has now been replaced by Crandall. The entire industry recognizes what Crandall recognizes and that there is little obvious cost cutting that remains other than capacity cuts and that the revenue line must become the focus for the industry. The interesting note to all of Crandall's suggestions for some form of reregulation is how US airline labor generally, and American Airlines' labor specifically, are hanging on his words of late. Is it Crandall the leader or the suggestion of reregulating the industry? Crandall the leader would not be handing out big increases in compensation in this fuel environment; yet Crandall the re-regulator is the silver bullet that would enable the industry to charge enough for an airline ticket to offer a return of the concessions and still employ all 400,000+ people that remain in the industry?

2. IATA Annual General Meeting

Mark Pilling of Airline Business writes Airline bosses call for strict capacity discipline following IATA’s Annual General Meeting last week in Istanbul. This piece is good reporting on the differing levels of cuts being considered around the globe. With the US undertaking the most aggressive actions: Europe is now beginning the process of how to react; the Asia-Pacific carriers are exiting some routes but redeploying capacity to other more promising routes; and the Middle East is continuing on their aggressive growth path. Is the industry serious about capacity discipline this time and will we really put capacity down as a reaction to outside forces and inherent inefficiencies? Or is this just a time out?

3. Labor PR and of Course Fuel Does Not Matter

I did not think I would see ALPA take a page out of APA’s tired play book, but they have. On Sunday night, the following appeared: labor Relations Darken at Hawaiian Airlines. But my favorite story in this topic area was written last week as Continental pilots picket for higher pay, benefits. I have no issue regarding a union’s right to picket. But I do have an issue with yet another irresponsible statement from a labor leader. In the Continental story, Captain John Prater, President of ALPA is quoted as saying: “Don't try to use the price of gas," said Prater. "The industry is unstable, and the only way to add labor stability is through a solid contract." What does that mean? Of course the price of gas will have absolutely nothing to do with the outcomes of negotiated agreements John [emphasis added]. With so many things happening in the interesting Hawaii market, I only wish I could write on some of them.

4. European Carriers

Over the last few months, stories have been appearing that suggest the underlying fundamentals in the European market are weakening. Austrian Airlines has suggested the carrier will seek a strategic partner. We all know of the woes at Alitalia. Among the Big 3 in Europe, British Airways has been warning of turbulence ahead for the carrier in the face of high oil prices and the carrier’s exposure to the weakening US market. And now there are even rumblings from Lufthansa and Air France/KLM. For each of those two carriers the revenue synergies have been captured through their acquisitions. Now there will be a renewed focus on costs. Finally, the US is not alone.

5. Asian Carriers

For me, things were starting to get interesting in this critical world region immediately following Singapore’s earnings announcement in February that was less than stellar. Then Cathay Pacific suggested it would begin to curb capacity growth. Then Qantas. Each of these carriers has a place on the list of global elite airlines and are not immune from the environment either. AFP reports that Oil costs will push some Asian airlines under: analysts. Thinking about it, this region’s airlines carry passengers long distances and we know that the price of fuel and long-haul flying are not in concert today in all markets. In the article it is suggested that the region’s airlines are not close to doing enough and that SARS-like capacity actions should be considered in some cases. With or without high oil prices though, this region is certain to lose airlines along the way given its early stages of development.

6. Boeing and Airbus – A Couple of Things

Julie Johnnson of the Chicago Tribune writes that Foreign carriers' woes could hurt jetmakers. I have heard that some deliveries will be deferred. Certainly today’s issues will only prolong the needed replacement programs for the US industry, except for Southwest, Continental, AirTran and others. The manufacturers and lessors cite the fact that aircraft can be quickly placed into another carrier’s portfolio if positions or newer generation aircraft come available. But we still have not felt the full effects of the economy’s headwinds in my judgment.

At the same time the manufacturers are doing the industry no favors by perpetually delaying the delivery of the new generation aircraft that promise significant efficiencies and fuel savings. I found it most interesting in Continental’s announcement last week that it would park its older aircraft but continue to take delivery of new aircraft. This will be a story to watch.

7. Liquidity and US Airline Equities

Bill Greene, Morgan Stanley’s airline analyst, published another very good piece of research today where he continued to write on his tipping point theme. He writes: Too soon to begin buying US airlines, in our view. "As we’ve written in the past, we believe that amid the current macro backdrop, airlines will not become attractive investments until the industry reaches a Tipping Point - when extremely bearish fundamentals trigger broad, acute financial distress and restructuring that leads to significant capacity reductions (beyond current announcements); thus, serving as a very bullish catalyst for shares in surviving airlines. After updating our estimates for $130/bbl oil, it appears that a Tipping Point catalyst is more a question of when rather than if."

In Greene’s liquidity analysis of his tipping point theory, some very interesting findings are expressed. I have written often of liquidity concerns and that this period’s focus will remain firmly on the balance sheet and the cash flow statement. Yes we are in a cash burn scenario yet again. As Greene analyzes the airlines he covers, he points to the steeply downward sloping liquidity positions for each of the carriers assuming $3.81 jet fuel and taking into account all fixed obligations between now and the end of 2009.

Through 2009, he ranks the US airlines he covers from worst to best in terms of liquidity: US Airways, and a need to raise $1.5 billion to maintain a liquidity balance equal to 10 percent of last 12 month revenues; American, and a need to raise $2.6 billion to maintain a liquidity balance equal to 10 percent of last 12 month revenues; Northwest, and a need to raise $856 million to maintain a liquidity balance equal to 10 percent of last 12 month revenues; Continental, and a need to raise $260 million to maintain a liquidity balance equal to 10 percent of last 12 month revenues; United, and a need to raise $290 million to maintain a liquidity balance equal to 10 percent of last 12 month revenues; Delta with no need to raise cash; and jetBlue, with no need to raise cash.

8. Continental's Announcement of Capacity Cuts

Last week, Continental described in detail its planned capacity reductions. Can we learn anything from their list as we look toward the detailed cut announcements to be unfurled by United, American, Delta, US Airways and others as we approach fall? Markets with leisure attributes that demonstrate little to no hope of being able to charge for the full cost of fuel, let alone all other expenses associated with carrying a passenger from A to B will either be eliminated or cut back significantly. Long-haul regional jet flying will be scrutinized, and reduced, as Continental cut a number of these city pairs. City pair routings of a highly seasonal nature might be totally eliminated during the shoulder season. And while much has been made of the shift to international flying, Continental certainly demonstrated that underperforming international markets will be cut as well. Finally, the elimination of service to certain cities that offer little hope of ever being profitable were dropped from their network map. Distinct patterns will develop as other carriers make their announcements.

9. The Mixed LCC Bag

Samer A Majali from Royal Jordanian was named the new Chairman of IATA. In an interview where he discussed issues confronting the global airline industry, he stated that fuel prices to hit budget airlines the hardest. In the US we have witnessed this very issue. We have seen ATA liquidate; Skybus liquidate; Frontier file for Chapter 11 reorganization and still searching for capital; and just recently Sprit announced that it will begin to cut capacity and headcount. This is not a very good time to be a "bottom fisher". AirTran and jetBlue have each sold aircraft and/or delivery positions to bolster liquidity. A question to ask: what will Southwest do when it has to run an airline instead of a trading desk? Will Southwest become the savior for big leisure-oriented markets like Las Vegas and Orlando and will these will be the markets that “fuel their growth”? Southwest is the one that scares me on the capacity discipline issue.

10. Those Frothy Commodity Markets

Today, the Air Transport Association called on Congress for U.S. curbs on oil speculators. I just get nervous when this industry calls on Congress for anything as it seems to be an invitation for layering on more favors that tend to make this industry even more inefficient than it is. But I do understand the need to investigate anything and everything that could help in the jet fuel area.

Finally and based on my previous post, the world’s best golfer was crowned yesterday. Only issue is - he had already been identified.

Reacquainted With A Great Quote

Peter Goodman, writing for the Daily Times in Pakistan, penned a piece entitled: Time to ask Milton Friedman?. Goodman writes: “So firm was his regard for market forces, so deep his disdain for government, that Mr. Friedman once said: If you put the federal government in charge of the Sahara Desert, in five years there would be a shortage of sand.”

Nearly 15 years before the airline industry was deregulated, Friedman was calling for government to take its hands off of the industry. What if there was no government interference with the airline industry when the jet engine was introduced. Would today’s construct be better or worse than it is? So as we begin the process of congressional hearings on the Delta-Northwest transaction this week, I am troubled, concerned and worried for the industry.

On Tuesday night of last week, FOX Business had Robert Crandall, former Chairman and CEO of American Airlines on as a guest to discuss the Delta-Northwest deal specifically and industry issues generally. While it looked like the Bob Crandall we all looked up to as we learned the airline business and how to think about it, the words were more Lou Dobbs. A most disappointing interview with a person I once admired, but a precursor of things we will begin to hear I am afraid.

Just not much to say.

Added on April 21, 2008

When I posted last night and ended with the mention of Robert Crandall’s appearance on FOX Business, I did not know that an op ed piece would appear in today’s New York Times. Crandall pens a piece entitled Charge More, Merge Less, Fly Better - New York Times. For a guy who was admired for being a most aggressive competitor and willing to employ any tactical and strategic action to give his American Airlines an advantage – I just find his words to be, well – you be the judge. For some they will be refreshing, for others they will be anything but. At least he mentions that fares have to go up.

I will take Friedman because many of the issues that Crandall cites have needed fixing since the industry was deregulated.