Issue No. 809
Are Alliances Back in Style?
What Does Alaska Airlines' Decision to Join Oneworld Tell Us About the Future of Alliances?
Pushing Back: Inside This Issue
Are alliances back in style? In recent years, some airlines and analysts have said the industry has moved beyond alliances and toward a future of bilateral agreements between unaligned carriers. But Alaska Airlines' decision to join the Oneworld alliance flouts that thinking and shows there's still potential in the old model.
Meanwhile, Air Canada's called off its acquisition of Transat, citing "onerous" relief measures demanded by the European Commission. More airlines are adding even more leisure routes, chasing whatever traffic there may be. Airports in the U.S. could get $25 billion if President Joseph Biden's infrastructure bill is approved. Delta CEO Ed Bastian had a rough week, facing blowback from all sides over his comments on Georgia's new elections law. And airlines seem confident the summer will be the start of the recovery. But with fresh outbreaks of the Covid-19 pandemic in all corners of the world, might that optimism be misplaced?
"We cannot afford to be locked out of that market [China]. There is nothing good that comes from restricted trade for the Boeing Co."Boeing CEO Dave Calhoun
The Airline Weekly Lounge Podcast
New episodes drop every Thursday on our site or wherever you get your podcasts. In the latest episode, Edward "Ned" Russell and Madhu Unnikrishnan discuss the evolving role for chief executives — like Delta's Ed Bastian on Georgia's new elections law — who find themselves having to weigh in on thorny social and political issues.
Air Canada and Transat on April 2 called off their planned merger, citing “onerous” remedies the European Commission (EC) required for the deal to conclude.
The merger had been hanging by a thread recently, as regulators in the EC dragged their feet on approving the deal. A bid from Quebec businessman, Pierre Karl Peladeau, had emerged as an alternate if the Air Canada deal fell through. Transat, in its most recent earnings call, said it still preferred a merger with Air Canada, however.
Transat said Air Canada pulled the plug after the EC said it would not approve the deal without further remedies. “Air Canada reached its limit in terms of concessions it was willing to provide the European Commission to satisfy their competition law concerns,” Transat CEO Jean-Marc Eustache said.
For its part, Air Canada said it had offered the EC a package of remedies that had been “traditionally accepted by the EC in previous airline merger cases.” Further remedies would affect Air Canada’s ability to “compete internationally,” adding that the carrier wasn’t even certain the EC would accept more accommodation.
“The [European] Commission’s preliminary findings were that the proposed transaction would raise competition concerns on a large number of transatlantic routes,” Margrethe Vestager, EC executive vice president said in a statement. “Based on the results of the market test, the remedies offered appeared insufficient.”
As part of the termination agreement, Air Canada will pay Transat a C$12.5 million ($10 million) termination fee.
Air Canada first proposed its merger with Transat in June 2019. The final deal took shape last October.
AirAsia Sees International Recovery in Second Half
AirAsia is looking toward the second half of this year for international travel to resume in any meaningful way. If, that is, vaccinations pick up pace and consumer confidence returns.
The company reported fourth-quarter 2020 revenues of RM267 million ($64 million), down sharply from the third quarter, as Malaysia imposed further lockdowns in response to Covid-19 outbreaks. Quarterly revenue was down 92 percent year over year.
For the full year, revenues were down groupwide by 74%, to RM3.1 billion. AirAsia flew just 29 percent of its 2019 capacity last year. But the pain was not felt equally across the group. AirAsia Thailand, for example, flew 116 percent of its December 2019 capacity in 2020, due to the country’s effective control of the virus.
Groupwide, AirAsia reduced staff costs by 61 percent, after layoffs and across-the-board salary cuts. CEO Tony Fernandes said the company plans to reward remaining employees this year with long-term incentives.
“With vaccination programs accelerating around the world, improved testing capabilities, the likely introduction of global digital health passports, formation of leisure travel bubbles in the region and contactless procedures already in place for AirAsia, we are very optimistic that international air travel will resume in the second half of 2021, leading to our full recovery within the next two years,” Fernandes said.
AirAsia’s digital arm reported revenues up 13 percent as the company expands its digital platform to include non-airline sales.
Delta Nearly Loses Tax Benefit in Georgia Over Elections Law Retribution
It didn’t take long for Delta Air Lines to feel the heat — again. The airline almost lost a $35 million jet fuel tax benefit after Republicans in the Georgia General Assembly sought to punish the Atlanta-based company for speaking out against the state’s controversial new elections law.
Last week, the state House of Representatives narrowly approved an amendment that would have ended the exemption on jet fuel sales from the state’s 4 percent tax. The Assembly adjourned before the state Senate could vote on the measure, effectively giving the airline a months-long reprieve while the legislature is in recess.
Republican State House Speaker David Ralston, however, vowed to press the issue, telling reporters that Delta shouldn’t “bite the hand” that feeds it, the Atlanta Journal-Constitution first reported.
Republicans were furious with Delta CEO Ed Bastian for forcefully condemning the new law, which voting rights activists say hinders minority access to the polls, among other suppressive measures. Bastian called the new law “unacceptable” and “wrong.”
But he came out against the law after Delta itself faced intense blowback and boycott threats for an initial statement that critics said was tepid. Then, Bastian defended the company’s first response by saying Delta worked with legislators to remove some of the more “egregious” measures in the first bill.
Bastian’s criticism of the law drew fire from Gov. Brian Kemp, a Republican, who said Bastian “spread the same false attacks being repeated by partisan activists.”
This is not the first time Republicans have retaliated against Delta with jet fuel taxes over a controversial stand the airline took. In 2018, Assembly Republicans stripped the exemption after Delta cancelled its group discount for National Rifle Association (NRA) members in the wake of the school shooting in Parkland, Fla. Then-Gov. Nathan Deal, also a Republican, later reinstated the exemption through executive order, and the legislature restored it permanently in 2019.
Bastian is not alone in his public opposition to the voting law. Atlanta-based Coca-Cola also called the law “unacceptable,” bowing to pressure after facing boycotts for its earlier silence. Apple and Wells Fargo, although not based in Georgia, are among the companies that in recent days also have criticized the law.
Republicans in Georgia, aghast that the state voted in November to elect President Joseph Biden and Senators Jon Ossoff and Raphael Warnock, all Democrats, and responding to former President Donald Trump’s baseless claims that his defeat in November was due to widespread fraud, rushed through a bill that many say restricts minority access to the polls. Kemp signed the bill into law last week. Biden called the law “sick” and “un-American,” and voting rights activist Stacy Abrams characterized it as “Jim Crow in a suit and tie.”
Sabre Bets It Can Simplify the Way Airlines Sell Seats
Everyone loves an analogy. Now we have Sabre comparing booking a seat on a plane to shopping in a supermarket as it launches its “new airline storefront.”
Sabre believes airlines have increasingly complex offers. So someone booking directly on an airline’s website could be overwhelmed by different fare names, seat types and the various ancillaries on offer when they try to compare that deal with another airline deal.
And when booking indirectly, say on an online travel agency, Sabre thinks those complex bundles get lost in translation, and end up being shown as just a fare, with little visibility on what’s included.
Sabre’s response is this storefront concept, which provides “shelves” for travel agencies, and travel managers, to display different airlines’ content side by side. It claims it is an industry-first capability that makes it easier to comparison-shop in the indirect channel.
Behind the scenes, its data scientists are mapping all of the airline offers, aspects like baggage allowance, refundability and exchangeability, and normalizing them into something that’s easily comparable.
It went live on March 31, but some of these shelves might not be as fully stocked at it would like them to be. For now, there’s no so-called new distribution capability content, or low cost carrier offers, being mapped over, while there’ll be questions over how travel managers can move away from a lowest price mentality. But Sabre insists this is a milestone.
In Other News
- American came out swinging just hours after the Texas legislature approved a new electoral law that critics say will hinder access to the polls. “To make American’s stance clear: We are strongly opposed to this bill and others like it,” American said in a statement. “As a Texas-based business, we must stand up for the rights of our team members and customers who call Texas home, and honor the sacrifices made by generations of Americans to protect and expand the right to vote.” Delta faced an immediate backlash and threats of a boycott when its first statement on Georgia’s new elections law was seen as weak. (See above.)
- IATA is calling on governments in Africa to relax quarantine restrictions and make Covid-19 testing more prevalent to encourage people to return to travel. The trade group urged African governments to more comprehensively implement testing and vaccination programs and to use digital tools, like travel passes, to bypass reliance on quarantines. Additionally, IATA said the continent’s airlines need more state support. African carriers have received only $2 billion across the continent in state aid. Eight airlines in Africa have filed for bankruptcy since the pandemic began, despite the state aid.
- IATA’s new director general reported for duty. Former IAG CEO Willie Walsh started his tenure at the organization last week after having been named to succeed Alexandre de Juniac last November. Walsh is IATA’s eighth director general.
- Avianca, which has been operating under bankruptcy protection since last May, reported full-year 2020 losses of $622 million on revenue that was sharply down from 2019. Revenue fell in the year from $4.6 billion in 2019 to $1.7 billion last year. But the carrier reported losses, to the tune of $554 million, in 2019. It’s last profitable year was 2018, when it reported a $232 million profit. While overall revenues fell, cargo revenue held steady at just over $700 million. The company ended the year with 146 aircraft, down from 171 at the end of 2019.
The U.S. Treasury is beginning to turn a profit from the loans it provided airlines under the CARES Act coronavirus relief package. American Airlines and Sun Country Airlines both repaid their loans at the end of March, with a new report estimating a double-digit return for taxpayers on the former’s debt.
The report by Cowen & Co. estimates the government made a roughly 21 percent annualized return on its loan and warrants to American — beating most major stock indices in returns over the past year. The Fort Worth, Texas-based carrier paid the Treasury Department $10.8 million in interest on its $550 million loan. However, the balance is paper returns that assume the government exercised its warrants in the airline and sold the stock at market prices on March 30 — something it did not do. Selling the equity stake then would have netted the government another $106 million in proceeds.
Sun Country prepaid of its $45 million CARES Act loan with proceeds from its IPO.
Considering the billions of dollars in additional warrants and loans made under the CARES Act and subsequent federal payroll assistance, U.S. taxpayers stand to make out well from these programs. Overall, Congress has allocated $79 billion in relief for airlines to date, though some of this was distributed as grants that do not have to be repaid. In addition, not all of the funds available as loans have been drawn.
This is not the first time the federal government has profited on airline relief. After 9/11, $10 billion in loan guarantees made by the Air Transport Stabilization Board netted the Treasury a roughly $300 million profit.
Alaska Airlines, JetBlue Airways, Mesa Airlines, SkyWest Airlines and United Airlines have not said when they plan to repay the just over $1.02 billion they have borrowed under the CARES Act. Every major U.S. carrier received separate payroll assistance with many giving the government warrants in return.
Frontier’s Shares Make Lackluster Debut
Frontier Airlines first day of trading was not the blockbuster Sun Country’s was last month. The Denver-based carrier’s shares closed on April 1 under its listed price of $19, already at the lower edge of the range Frontier had planned.
At a $19 per share valuation, Frontier had expected to raise as much as $570 million, but shares ended trading on the first day at the Nasdaq exchange at $18.85. (Markets were closed on April 2 for Good Friday.)
By comparison, Minneapolis-based Sun Country, roughly half the size of Frontier, saw its shares rise more than 50 percent on its first day of trading, on March 17, ending the day trading at $36.38. (The company’s share price has fallen slightly since then.)
Both carriers are leisure-focused, a segment of the market that is recovering faster than business traffic. But the key difference is that Sun Country also operates a subfleet of freighters for Amazon, and during the pandemic, cargo has been the most stable source of revenue in the airline industry.
At least one lessor believes the low-cost, long-haul model could work, even with so many doubters in recent years. AerCap is leasing nine Boeing 787s to Norse Atlantic Airways that will form the backbone of the startup carrier’s fleet when it starts flying later this year.
The 787s are all used — six 787-9s and three 787-8s. These will be the first aircraft in the new airline’s fleet. The 787 isn’t an unfamiliar aircraft to the team behind Norse Atlantic Airways. Norwegian Air recently began divesting its fleet of leased 787s when it ended its long-haul operations.
Norse Atlantic counts among its investors former Norwegian Air CEO Bjorn Kjos and former Chairman Bjorn Tise, along with Bjorn Tore Larsen, the head of an aviation staffing firm that once supplied crews to Norwegian. “We now have a once-in-a-lifetime opportunity to build a brand new airline from scratch,” Larsen said.
Norse Atlantic Airways expects to take delivery of its first 787 in December, with the rest following by the first quarter of next year.
The airline’s business model replicates the one jettisoned by Norwegian Air when that carrier filed for administration. In its reorganization plan, Norwegian Air said it would focus on short-haul flights in its home region and within Europe. At its height, Norwegian Air operated flights to Asia and North America and had subsidiaries in the UK, Ireland, and Argentina. Those subsidiaries have since been scaled back, and the company sold its Argentine subsidiary to JetSmart.
The empire was teetering even before the pandemic grounded most international flights, however. Although low-cost long-haul was popular — providing cheap fares to Europe and smaller cities, like Hartford, with direct international flights — the business model never made money. Wow Air collapsed in 2019, and even Icelandair, which had tried to get in on the game, scaled back its ambitions before the pandemic struck. Norwegian Air was the last holdout.
“We wish Norse Atlantic Airways every success and look forward to working with them as they roll out their plan in the years to come,” AerCap President Peter Anderson said.
Other lessors have expressed significant skepticism about Norse Atlantic’s model. At a recent investor conference, AirCastle CEO Michael Inglese said in the wake of Norwegian Air’s retrenchment his company would more closely examine customers’ business models before leasing aircraft to them. “Many of us took leaps of faith for Norwegian, Wow, and AirAsia X,” Inglese said. AerCap is much larger than its competitors and will grow larger still, if it completes its planned $30 billion acquisition of GECAS.
It’s not just lessors that are skeptical. At the same investor conference last month, United Airlines CEO Scott Kirby dismissed the low-cost transatlantic model completely, without singling out Norwegian Air or Norse Atlantic. “They had a business model. It didn’t work,” Kirby said. “They never made money, they never had a chance to make money. but they were doing a lot of damage along the way, and they’re gone.”
Norse Atlantic plans to start flying to such destinations as New York, Miami, Los Angeles, London, and Paris by the end of the year. But it still does not have an air operators certificate, and it can’t apply for a U.S. foreign air carrier permit until it has one.
This could be a tough row to hoe, however, if history offers any guidance. Unions and several U.S. carriers in the last decade waged a pitched, years-long pressure campaign on the Transportation Department (DOT) to deny Norwegian’s Irish subsidiary, Norwegian Air International, a foreign air carrier permit. They argued that the airline was “forum shopping” to find more favorable labor regulations, thereby flouting the U.S.-EU open skies agreement. The pressure campaign ultimately failed when DOT awarded the permit in 2016, but the wounds of the battle remain fresh.
Joe DePete, president of the Air Pilots Association, which led the fight against Norwegian, recently told reporters he is “glad Norwegian collapsed under its own weight,” adding that the union will press Congress and the DOT to scrutinize Norse Atlantic’s application for a permit. “It’s a corporate Frankenstein’s Monster,” DePete said of Norse Atlantic. “They’re putting a bunch of dead parts together.”
Rep. Peter DeFazio (D-Ore.), who heads the Transportation and Infrastructure Committee in the House of Representatives, implored new Transportation Secretary Pete Buttigieg to deny Norse Atlantic’s application. “At the end of 2016, the outgoing administration imprudently issued a foreign air carrier permit to Norwegian Air International — an airline that was ‘Norwegian’ in name only and established itself in Ireland under a flag of convenience to avoid Norway’s strong labor protections,” he said in a statement to Buttigieg. “Norwegian is bankrupt, and its U.S. services have ceased, but its founder is forming a new carrier that will likely seek a permit — Norse Atlantic — and it is imperative that you correct the error of 2016 and deny this airline’s application.”
Still, Norse Atlantic remains optimistic it will start flying by the end of the. year. The carrier raised almost $150 million in private investment in Norway and will start trading on the Oslo Stock Exchange next month, the company confirmed to Airline Weekly.
- Romanian discounter Blue Air began a fleet update last week with the arrival of its first Boeing 737 Max 8s. Under a lease deal with Air Lease Corp., the airline will take delivery of 10 737-8s through 2022. Blue Air majority shareholder Cristian Rada said the Max delivery begins an “accelerated” replacement of its 737NG fleet.
Separately, ALC delivered the first of three Boeing 787-9s to South Korean start-up carrier Air Premia. The carrier plans to connect Seoul Incheon with other international hubs.
- Airlines continue to tout their green credentials in the emerging field of electric aircraft. British Airways is the latest, joining a consortium of companies investing $24.3 million in ZeroAvia and the company’s development of a more than 50-seat hydrogen-electric aircraft. The company has ambitious plans for a hydrogen-electric 20-seat aircraft by 2024, and a more than 50-seat aircraft by 2026, and a 100-seat plus aircraft after 2030. Finnair, United Airlines and Widerøe have also inked deals with electric aircraft developers in recent months.
- Continuing its fleet renewal, U.S. regional Cape Air has firmed commitments for another 10 Tecnam P2012 Travellers due this year, plus 20 options arriving in 2022 and 2023. The airline aims to replace its more than 80 Cessna 402s with the new aircraft by the middle of the decade. Cape Air introduced the Traveller — after working with Tecnam to develop the prop — on flights to Nantucket in February 2020.
- The Federal Aviation Administration has certified the Boeing 737 Max 8200, allowing deliveries to begin to launch customer Ryanair this month. The 200-seat variant of the Max will be the highest-capacity version of the re-engined 737. Ryanair hopes to take delivery of eight aircraft in both April and May, and fly 16 during what is already looking like a robust summer schedule.
- More financial moving and shaking in the lessor world. Just weeks after AerCap said it would merge with GECAS, the Carlyle Group’s aviation arm said it would acquire Dublin-based Fly Leasing. The deal is expected to be worth $2.4 billion. Fly owns 84 aircraft, and more than 30 airlines in 22 countries lease aircraft from it. The deal could augur even more movement in the lessor industry, JP Morgan Chase analyst Jamie Baker said in a note.
- There was a day not too long ago that regional carrier CommutAir flew only Dash 8 turboprops on thin hops in the northeast for United Airlines. That day is long gone. Last week, the regional airline opened its fourth hub in Denver as it continues to expand its now all-jet fleet of Embraer ERJ-145s flying under the United Express brand. CommutAir’s map stretches from Flagstaff, Ariz., to Presque Isle, Maine, with the latest expansion.
- It’s more new routes for Ryanair. With the ink barely dry on a 26-route UK expansion this summer, the Irish discounter will add flights between Liverpool and Zadar, Croatia, from July to October. Ryanair is certainly living up to group CEO Michael O’Leary’s plan for the airline take as much marketshare as it can coming out of the crisis.
- Speaking of more routes, Spirit Airlines will add popular beach destination Puerto Vallarta, Mexico, to its map in July. The discounter will offer up to daily service to Dallas/Fort Worth, Houston Intercontinental and Los Angeles from July 1. Spirit will also connect Columbus and Los Angeles nonstop from June 9. Puerto Vallarta joins the growing list of new destinations on Spirit’s map, including Louisville, Milwaukee, Pensacola and St. Louis.
- Canadian discounter Swoop has jumpstarted plans to serve Victoria, British Columbia. Flights between Victoria and both Edmonton and Toronto will begin on May 20 after a nearly year-long delay due to Covid-19. A month later, Swoop will connect Kelowna, British Columbia, to both Hamilton, Ontario, and Winnipeg. The additions come as parent WestJet plans to resume flights to five cities it suspended last year, and add 11 new routes in western Canada this summer.
United Airlines will begin hiring pilots again after a year-long hiatus due to the coronavirus pandemic, therefore becoming the first major U.S. carrier to do so ahead of what is forecast to be a strong summer for leisure travel.
The Chicago-based carrier will hire 300 pilots initially, United Senior Vice President of Flight Operations Bryan Quigley said in an internal communiqué last week viewed by Airline Weekly. The airline suspended hiring in March 2020 when the drastic impact of Covid-19 on air travel became clear. The memo was first reported by CNBC.
United joins budget carriers Allegiant Air, Frontier Airlines and Spirit Airlines — all of which are forecast to emerge from the crisis earlier than others due to their heavy reliance on leisure flyers — in resuming pilot hiring. American Airlines and Southwest Airlines have no plans yet to start bringing in new crews, according to spokespeople.
A Delta Air Lines spokesperson was not immediately available for comment.
U.S. airlines shed nearly 58,000 staff members in 2020, according to Bureau of Transportation Statistics data. However, that number was buoyed by the extension of federal payroll assistance in December that allowed airlines to recall involuntarily furloughed staff. Airline employment was down by nearly 86,000 people at its worst last October.
“We can see that light at the end of the tunnel,” United CEO Scott Kirby said at the U.S. Chamber of Commerce’s annual aviation summit last week. Domestic leisure travel demand has “nearly recovered” to pre-Covid levels, he added.
Kirby is not alone in his optimism. In just the past week, American said it would return “most” of its fleet to service with net bookings at 90 percent of 2019 levels. And at a ceremony marking its membership in Oneworld on Wednesday, Alaska Airlines CEO Ben Minicucci said the carrier generated positive operating cash flow in March for the first time since early 2020 with bookings “strong” going into the summer.
Transportation Security Administration screening numbers have held above 1 million people a day since March 11, the longest stretch above that threshold since early in the pandemic. However, the nearly 1.6 million people screened on Thursday was still down 35 percent compared to 2019.
United’s decision to resume hiring comes as it juggles its operating fleet — and crews. Following the failure of a Pratt & Whitney engine on a Boeing 777-200 and subsequent grounding of those aircraft in February, the airline parked its 24 operating P&W-powered 777s and is ferrying the aircraft to Roswell, said Quigley. It plans to backfill that capacity by returning its stored Boeing 767-400ERs to service.
The airline stands alone among its peers as having retired barely any jets during the crisis. Only a small subfleet of 11 Boeing 757-200s with P&W engines have been officially written off. Comparatively, American has retired 95 mainline jets and Delta 118 mainline aircraft.
The few aircraft retirements at United should limit the amount of pilot retraining it needs moving crews to different planes. A training backlog forced Delta to cancel flights over the Thanksgiving holiday, and has raised concerns for American’s target of returning most of its fleet to service by June.
Almost 1,000 pilots have either retired or taken early departure packages from United since September, Quigley said.
Pilot Training Backlog Could Slow Anticipated Recovery at American Airlines
American is gearing up for what could be a busy summer travel season in the U.S. by getting many of its jets that remain in storage ready to fly again by June.
The Fort Worth, Texas-based carrier aims to “reactivate most” of its 855 mainline aircraft — plus many of its 544 regional aircraft — in the second quarter, American said in a Securities and Exchange Commission filing. The move comes as net bookings hover within 90 percent of 2019 levels, and load factors stand at roughly 80 percent on capacity that is still down 40-45 percent compared with two years ago.
American’s latest outlook is positive news for an airline industry hit hard by the coronavirus pandemic. After hemorrhaging cash for more than a year, several airlines expect to break even with the help of government payroll assistance this month. And U.S. airport screenings have held steady above one million people a day for more than two weeks, Transportation Security Administration data shows.
So good news for American, right?
Maybe not if you ask the Allied Pilots Association (APA), which represents pilots at the airline. American faces a lengthy training backlog as a result of both furloughed pilots and those who took voluntary leaves coming back, retraining crews from the four aircraft types that were retired during the crisis, and regular refresher training for active pilots, said APA spokesperson Dennis Tajer.
“They’re going to have the metal out there, they’re going to have the passengers out there, but will they have the pilots to fly them?” he said.
Executives at American have previously acknowledged a crew training logjam. During a recorded message on March 21 shared with Airline Weekly, the airline’s Vice President of Flight Operations Captain Chip Long told pilots that a confluence of factors had created “just a bit of a backlog” training crews. American can train roughly 280 pilots a month, he added.
American spokesperson Matt Miller declined to comment on whether pilot staffing could delay the return of the airline’s fleet. However, he noted that there is some flexibility in how many aircraft are back in service by the end of June without providing specifics.
There is a certain irony to the fact that, after pruning its workforce and furloughing staff during the crisis, American could now find itself hamstrung by a training backlog. But that, in a nutshell, is the argument unions made for the $54 billion in payroll relief the industry has received from the federal government: Once staff leave an airline, whether on furlough or voluntarily, retraining and certifying them to fly again takes time. And that process can slow an airlines’ ability to resume flights when travel demand recovers quickly.
American has not disclosed what planes will return to service versus which ones will remain parked this summer. However, with international travel still contrained by Covid border restrictions, a likely scenario is the airline returns its narrowbody fleet first before bringing back all of its widebody jets, which primarily operate long-haul international flights.
At the end of 2020, American had 112 widebody Boeing 777 and 787 aircraft, and 743 narrowbody jets. The airline permanently retired 95 mainline aircraft, including all of its Airbus A330s and Boeing 767s, as a result of the crisis.
In Other Labor News
- American Airlines’ regional carrier Envoy and its flight attendants reached a tentative agreement on a new five-year deal, the Association of Flight Attendants (AFA) said. Details on the new contract have not been released, but AFA said it includes pay raises, benefits improvements, and better working conditions for Envoy’s 1,700 flight attendants.
President Joseph Biden’s $2 trillion infrastructure improvement plan has $25 billion set aside for airports, which may not be enough to answer the country’s airport improvement needs and does not address the overdue investments in air traffic control infrastructure, two leaders in the field said last week.
The $25 billion investment will “go a long way” toward rebuilding. and modernizing U.S. airports, Airports Council International-North America (ACI-NA) President Kevin Burke said at the U.S. Chamber of Commerce Aviation Summit last week. But the group says airports need more funds than that to modernize. “We will need $115 billion over the next five years to bring airports up to 21st century standards,” Burke said, noting that the average airport in the U.S. is more than 40 years old.
The pandemic revealed that U.S. airport architecture now is ill-equipped to handle social distancing and other public-health requirements. The Sept. 11, 2001 terrorist attacks required airports to scramble to shoehorn enhanced security protocols into aging terminals, Burke said. “We have to take a different approach and modernize terminals so people have enough room to sit safely and to accommodate different aircraft than were flying 40 years ago.”
Biden has said he hopes the $25 billion goes toward “hard” airport infrastructure, like terminals and runways. But Thales North America CEO Alan Pelligrini at the same event stressed the importance of investment in ground-based safety and navigational infrastructure.
For too long, air traffic control investment has focused on other aspects of the system at the expense of ground-based infrastructure, Pelligrini said. A new group, the Ground-Based Aviation Infrastructure Coalition is launching to press Congress and Transportation Secretary Pete Buttigieg on the importance of this element of airport infrastructure. “Fifty percent of instrument-landing infrastructure is based on 1970s technology,” Pelligrini said. “We must prioritize and fund aviation infrastructure investments to allow the U.S. to have the safest systems in the world.”
Prague Pitches Itself as Business Travel Hub
The business travel sector had superstar cities before the pandemic. The typical corporate traveler or meeting planner often located meetings in cities with major airport hubs and large convention venues. In shorthand, they preferred Paris over Prague.
Once the pandemic recedes, Prague hopes that new technologies and new traveler behaviors may help it gain more business travel spending.
Many experts predict that a rising share of companies will keep a percentage of their workforces remote, or distributed, for some time. The dispersed workers will need to unite with colleagues frequently, leading to a potential boom in corporate retreats and more frequent team off-site gatherings.
Prague’s geographically central place in Europe holds promise as a business travel hub. Yet it remains better known as a weekend holiday spot. Leisure travelers made Prague the fourth most-visited European city after London, Paris, and Rome before the pandemic, according to research firm Euromonitor. It drew more than 9 million tourists in the pre-pandemic year of 2019 — but far fewer business travelers.
Last week, Prague’s main airport debuted a redesign that aims to make it friendlier to transfer passengers flying on separate airlines. The aim is to boost stopovers.
To start, the service works only for people who buy tickets via Kiwi.com, an online travel agency based in the Czech Republic and backed by top-tier private equity firm General Atlantic. But the concept could also work with other programs run by EasyJet and other airlines.
Passengers who purchase a flight itinerary involving different airlines and connecting via Václav Havel Airport now will have an easier time self-checking their bags on the onward flight.
The airport has added fast-tracked security checkpoints for self-transfer passengers to reduce confusion and speed up boarding through its Fly Via Prague offering. Signs have been added in all terminals to point passengers toward the relevant lines and kiosks, reducing confusion.
The airport is also offering discounts for self-transfer passengers to visit a few of its lounges.
Prague is one of a few smaller cities, or “Zoom towns,” that see an opportunity to market themselves as cheaper and easier alternatives to major urban centers for holding business meetings and off-site retreats.
“Self-connect traveling was on the rise even before the current crisis, and the trend will continue,” said Jakub Puchalsky, member of the Prague Airport board of directors.
Prague joins Budapest, Cologne, and Reykjavík in spying a chance to market themselves as cheaper and less stressful places to transfer flights, compared to large hub airports. The cities hope to win a greater share of hosting off-site business gatherings.
Budapest, for example, is also well-located in Europe and, like Prague, is known mostly as a leisure getaway spot. Hungary’s national airline Malev collapsed in 2012, putting it at a disadvantage in wooing business travelers.
So Budapest Airport adopted a similar self-connect offering to woo transfer passengers with Kiwi.com. Since its airport launched a so-called “BUD:connects” service in late 2019, the airport has seen its transfer passenger volume increase by more than 55 percent, with 35,000 self-connecting passengers in the first three months of 2020 before the pandemic hit.
Budapest has also been creating downtown bag drops for travelers to encourage them to stay downtown rather than go back early to airports on their last day of a visit. The city transports the luggage to the airport on the passengers’ behalfs. A planned next phase would be to create flight- check-in counters at the river cruise port in the city so that their passengers can also check in their bags and remain downtown rather than heading straight to the airport.
Travelers can also buy tickets for longer lengths of stay than the traditional few hours. It’s part of an effort to encourage stopovers in-between the legs of an itinerary.
Reykjavik is perhaps the world’s well-known example of a smaller city that has made its airport more attractive as a transfer airport as a way to boost business and leisure visits.
The network of global airline alliances got a vote of confidence last week when Alaska Airlines became the 14th full member of Oneworld with a snazzy new safety video to boot.
The membership is something of a feather in the alliance’s cap. The Seattle-based carrier long eschewed the three big alliances in favor or what executives called a “Swiss strategy” toward partnerships. In other words, Alaska remained unaligned but partnered with carriers all over the globe no matter where their alliance allegiances lay.
That strategy appeared to reach its end by February 2020 when Alaska unveiled plans for a new partnership with American Airlines and to join Oneworld. Corporate customers in its Seattle home, as well as its growing stature in California following the 2016 acquisition of Virgin America, demanded a more global franchise. And without the big jets — or ambitions — to fly around the world, Alaska turned to the next best thing: An alliance.
“This was important pre-Covid — it’s even more important now,” Alaska Senior Vice President of Fleet, Finance & Alliances Nathaniel Pieper said in an interview. Overnight, Alaska gained a network of more than 1,000 destinations in more than 170 territories around the world.
The expansion comes even as international travel remains at historic lows. According to the latest data from trade group Airlines for America (A4A), international passenger numbers on U.S. airlines were down 58 percent during the week ending March 30 compared to the same period in 2019. Cross-border travel has been hard hit by border restrictions that range from outright bans to lengthy quarantines upon arrival.
Travel restrictions will go away at some point, with many expected to lessen this year. However, the consensus is that global air travel will take until around 2024 to recover to pre-pandemic levels. And when it does, airlines are eager to capture as much travel demand as they can.
“When international comes back, our best team is on the field and we’re ready to roll,” said Pieper.
A Reshaped Industry
“Because of the pandemic, airlines eliminated fleet types and they don’t have the aircraft to fly [all their] routes anymore so they will again rely on their partners,” said Cowen & Co. airline analyst Helane Becker. “As a result, we think the importance of alliances will grow again.”
American is one example of this pandemic adjustment, according to Becker. When the airline retired its Boeing 757s, it was forced to drop plans for its first-ever flight to Africa, a nonstop between Philadelphia and Casablanca. Despite this, the carrier does “serve” the Moroccan city — just via connections with its Oneworld partners, including British Airways and Royal Air Maroc.
This story is repeated across airlines and regions. From Air France-KLM retiring “all the aircraft with four engines” as Chief Financial Officer Frederick Gagey put it in February, to the Lufthansa Group streamlining its diverse wide-body jet fleet by removing eight different aircraft types. How these moves change their respective maps post-Covid remains to be seen but one can be confident both carriers will lean more on their alliance partners — and their partners’ hubs.
“Unquestionably, the scaling back of individual carrier fleets and international networks has proportionately increased the dependence on collaboration and partnerships,” said Star Alliance CEO Jeffrey Goh. One example of an area where airlines can benefit from working together is the emergence of digital health passports. Alliance members can create a more seamless experience for travelers by collaborating on these apps, rather than pursuing individual solutions.
Not everyone is convinced that the crisis has reinvigorated alliances. Shakeel Adam, a managing director of aviation consultants Aviado Partners, said Alaska’s Oneworld membership is neither a positive or negative development for the partnership structure. The network benefits are often negated by the added cost and complexity of membership, he added.
“Alliance membership rarely adds a lot of value that cannot be achieved through robust bilateral deals,” said Adam. This is why many carriers have pursued closer partnerships, known as joint ventures, with one or two other airlines in recent years.
For example, LATAM Airlines left Oneworld in 2020 after inking an equity investment and joint venture deal with Delta Air Lines. The desire to finalize this pact only intensified during the pandemic, with LATAM hoping to use its Chapter 11 bankruptcy restructuring to accelerate approval of the tie up. LATAM’s move and other shifts before it had raised questions — including from Becker — over the relevancy of airline alliances before the crisis.
The World Awaits Alaska
Pieper said if he were to ask “‘please come invest with us bilaterally,’ with capital tighter, resources tighter and time very tight — there’s no way my phone call gets answered.” “This was important pre-Covid, it’s even more important now.”
Now, Alaska can sell tickets to any Oneworld destination to its corporate customers. No small thing when considering the carrier’s main competition in Seattle and California are global carriers Delta and United Airlines, respectively.
And the airline expects a financial upside from its new partners. Speaking at a virtual ceremony marking the Oneworld membership last week, Alaska CEO Ben Minicucci said the partnership will be “significantly accretive to our bottom line.”
A recent Raymond James analysis estimated a 0.5 percent revenue boost — or roughly $44 million annually — over 2019 levels for Alaska from alliance membership. And the carrier will receive a further 0.9 percent revenue bump from its new American alliance, that includes new nonstops on the Fort Worth, Texas-based carrier between Seattle and Bangalore, London Heathrow and Shanghai Pudong.
Alaska is not giving up all of its bilateral partnerships. While Pieper declined to name what airlines would stay, he said carriers like Icelandair and Singapore Airlines could provide utility that Oneworld does not.
“What we’ve been saying to our stakeholders in Oneworld is that ‘it’s not that you’re wrong, alliances provide this ecosystem that all these bilateral and trilateral partnerships can exist,’” Oneworld CEO Rob Gurney when asked of the criticisms of the alliance model.
As carriers emerge from the Covid-19 crisis weaker and with record levels of debt, there will be “a big incentive to do things on a more collaborative basis than have been done before,” he added.