Five Airline CEOs on New Aircraft and Regulation

And now, finally, part three of the airline CEO panel. I promise this is my last post on the symposium for this year. They finished Airline CEOsup with a discussion about new aircraft and regulation. (See part one on consolidation and part two on competing and cooperating with low cost carriers.)

On the Introduction of New Aircraft
Republic CEO Bryan Bedford: We spent a lot of time looking at the narrowbody product offering and we fly a lot of Airbus products. Our employees love them. It’s a great aircraft. Then you start looking at operating capability and cost. You’re looking for that step function change to overcome the induction differences with training, different costs. Before I’m going to induct a new fleet type, I have to get a new double digit saving opportunity.

So with the [Bombardier] C Series, we saw an airplane that at least, as advertised and engineered, will deliver the goods. We compare a 138 seat aircraft to 138 seat aircraft, we’re looking at between 17 and 19% aircraft-related cost savings.

Qatar CEO Akbar al Baker: We look at the operating costs, amenities and the product improvements that these new airplanes bring. We also believe in keeping types of airplanes we operate to a minimum. We like to keep our fleet up to date. The average age is just 3.2 years.

British Airways CEO Willie Walsh: It’s great to see good competition between Boeing and Airbus and developing competition like the C Series. We have had a look at that and it looks like an excellent aircraft. We’ve ordered A380s and 787s. We see them as being very different from the A380. An aircraft like an A380 can be very effective at some destinations we serve. Hong Kong is a good example where typically we’d operate 3 747s a day and they leave within an hour of each other. So frequency is not important, volume is. If you can replace 3 747s with 2 A380s you get much better economics and it frees up a slot at Heathrow. The A380 works really well but we never saw it as an ideal replacement for the 747.

The 787 has the opportunity to be a game changer more than anything else. It’s a very efficient aircraft, it should be, and I think that will open up new destinations that are just not economic with the aircraft we have today.

US Airways CEO Doug Parker: I see nothing revolutionary coming out of the manufacturers. It’s not meant to be disparaging, the jet age is over and physics are what they are. Clearly there are some things evolutionary that would be of interest. What matters to airlines right now is, consumers don’t care, you can find no difference between aircraft types. No premium for a better airplane including even regional jets. Now it clearly matters how many seats you have. So what matters is for the number of seats you have in the market, how do you generate seats at the lowest cost. If there’s a next generation narrowbody that’s coming that works, that’s great, but I don’t think it’s a revolution.

JetBlue CEO Dave Barger: We’re kind of boring compared to Willie. I’m just looking for a winglet or a sharklet so we can go Boston to Oakland 100% of the time. We’ve been testing with Aviation Partners a winglet. We’re through the testing now and we’ll see if Airbus can work the engineering accordingly. Not just better range but the fuel efficiency that everyone talks about. That’s a big number for an airline like JetBlue. As Doug mentioned, whenever it’s decided to be built, there are some improvements that are out there technologically that can help.

Willie: I think there are issues. Doug is right to a point, but sometimes you’ve heard customers say it. “I hope I’m not traveling on that thing.” Propellers somehow still discourage people. I think there is an issue, the open rotor from an efficiency point of view sounds fantastic, but I’m not sure if it’s the right way forward. You’ve got this balance between noise, which is a very sensitive issue, and fuel efficiency. I think people need to think long and hard before leaping to these solutions.

Doug: If that’s the only problem, that’s a marketing problem. Get Sully to fly around in one and say it’s safe and you’re fine. There is more to it than that but the simple optics issue is something that we can deal with.

Bryan: Clearly today, Willie mentioned it, there is this aversion to getting on a prop plane whether it’s less safe, noisy, bumpy, lower altitude, who knows but it’s there. It’ll be one of these issues about how low a cost for someone to take the revenue.

Dave: Put TV in the back of the seat and nobody will ever notice.

On Regulation
Dave: I think, Doug I’ve heard you say, we brought [the three hour rule] on ourselves. We were there 3 years ago. It’s unfortunate that we spend so much time because we brought it on ourselves, because if we could spend more time talking about investment and technology, as we start talking about RNP and RNAV, the procedures at these airports, what a better use of time as long as we’re not stranding customers on the tarmac. That type of thing, things such as financial regulation and oil speculation and the bills that are making their way through Washington.

There are parts of the same building talking about oil going to $200 a barrel and other parts talking about shorting the airline stocks. What’s wrong with that picture? Investment in technology, focused oversights, position limits, whatever it might be so that we’re not caught in the middle is very important and then climate change. I think we’re playing catch up to other countries. Just do no harm. We’ve done an awful lot to really drive fuel efficiency. It’s a big deal.

Bryan: I agree with everything Dave said. I’d like to envision a partnership between government and industry between regulators and those who are regulated so we don’t feel like we’re constantly fighting each other. The things that bind us together are much greater than the things we don’t see eye to eye on, but the climate in Washington seems to be more of a “gotcha.”

I’m not sure what it is but it feels like there’s less cooperation. It may not be happening in the trenches, but when we see our public officials come out and castigate a guy for wanting to implement a carry on baggage fee – why is that a political thing? Customers should be able to decide not to fly that guy. I think the problems are real and significant and there’s opportunities to fix them. You’ve got very willing industry participants. We want efficiencies because burning less gas makes that pie bigger for our employees to share in. We all want the same thing; we just have a hard time getting there.

Doug: Our message is simple: do no harm, which means two things to us. Please no new taxes or fees. We’re already the most burdened industry, higher than cigarettes, alcohol. We’re taxed like we’re a vice. For now, just don’t give us any more please.

The second part of that is that you’ve got to let us go do self help so we can fix ourselves. Don’t get in the way of us trying to do things to get this industry profitable. This slot swap that we announced in August still isn’t approved. Just please execute the slot swap. It’s symptomatic about what’s going on. This is pro-consumer. Delta is going to take those slots and fly big airplanes, we’re going to do the same in Washington. This is good. . . . All we want is just let us compete; let us do the things that other businesses are allowed to do – trading assets – let us compete within the antitrust laws. There are laws if we start to violate those, but these are not even close. I can’t imagine there’s any problem with United/Continental but there are going to be people in the administration that are going to try to make problems. Our government doesn’t seem to want to let our industry get itself profitable. Just leave us alone and let us compete.

Willie: I enjoyed that. Governments and regulators have two very important roles: safety standards and security standards. It’s important to acknowledge there’s a standard of safety that we must match and aim to exceed. Regulators telling us what to charge, where we can fly, those days are long over. I think they need to stand back. We’re dealing with a situation in Europe. European airspace closed down for the best part of 6 days. As an airline we’re deemed responsible for providing food drinks, phone calls, etc. This had nothing to do with the airlines and yet with thousands and potentially hundreds of thousands of customers stranded away from home, we’re forced to pick up the bill. We then have to give priority to the people with bookings instead of trying to get people repatriated because it forces us to pay high levels of compensation to anyone who we would bump from the flight. Politicians were criticizing the industry yet at the same time telling us to comply with this legislation which prevented us from doing that. Common sense says the regulators should have suspended the legislation and allowed the industry to sort out the problem. We do well in the face of challenges like this. If we had been allowed the scope to do what’s right for customers, we would have handled that situation in a much better way. And when we talk about closing down airspace in the first place – scandal – it never should have happened. We’re forced to stop flying and yet we have to pick up the bill. Consumers do not benefit from that. We need regulators to stand back and look at the big picture and really challenge us to sort these issues out. This is a brutally competitive industry. We will fight for every customer. If one airline wants to charge you to carry on a bag and everyone else says they won’t do that, why should a regulator intervene?

Doug: I enjoyed his comments.

Akbar: I entirely agree with Willie that they should leave the airlines alone. The more they interfere with us, the more they will put us against the wall. The general public will suffer.


24 Responses to Five Airline CEOs on New Aircraft and Regulation

  1. “Doug: Our message is simple: do no harm, which means two things to us. Please no new taxes or fees. ”

    This was sarcastic right? Did everyone in the room start laughing when the CEO of US Airways started complaining about fees? Isn’t this the same guy who thought charging passengers for water was a good idea?

    I don’t like airport taxes and fees any more than he does, but this industry in particular has zero credibility with the public when it comes to complaining about fees imposed on them when they are tripping over themselves to impose fees on us.

    • Dan says:

      Complaining about Parker’s stance on this issue doesn’t make any sense… you know who pays the government imposed taxes and fees, right? It’s not the airline… Do you *want* to pay more BS government imposed fees? If not, then don’t you think it would be better to support the airline’s position instead of attacking it?

      As far as the ala-carte models go… well I’m a fan of the free market.

      • I do not beat up their position, as I said clearly that I do not like the airport taxes and fees. I am beating up an industry that has the hypocrisy to complain about government fees while one upping each other to place fees on passengers.

        Ala-carte works for them, but they hate it when the government does it. Aren’t government fees just ala-carte taxes? The industry will never have much political sway as long as it is so deeply unpopular with the public, and increased fees are a big reason for their notoriety.

        • Dan says:

          Well, in politics, if your enemies are doing something that you support, you don’t fight them just because they’re your enemies. You make nice with them if it leads towards a common goal.

          IMHO, there’s true ala-carte fees (checked bags, food, premium seating, etc) and then there’s sucker fees (fuel surcharges, credit card payment surcharges, etc) that are just hidden increases that you can’t avoid. And more taxes just make the consumer mad anyway. Look at rental cars, where local municipalities like to tax the crap out of them to pay for various things like stadium improvement and what not. When one sees a base rate and then finds out “taxes and fees” comprise a 50% increase, nobody is happy.

          The problem with the average traveling consumer is that what we *say* vs what we *do* are two very different things. If we’re not willing to pay for a better experience, well, we sure aren’t entitled to one.

  2. Jim says:

    “Akbar: I entirely agree with Willie that they should leave the airlines alone. The more they interfere with us, the more they will put us against the wall. The general public will suffer.”

    Of course, the banking industry was probably saying the same thing five years ago … and look what all of that benign neglect got for the public.

    • This isn’t a fair comparison. The banking regulators flat out abdicated monitoring several areas. The airlines still are regulated for safety and multiple other areas. They’re not calling for safety regulation to be dropped, only regulation regarding what they have to provide.

  3. Dan says:

    Cranky,

    I think you saved the best for last. Now, this quote from Parker makes me scratch my head: “What matters to airlines right now is, consumers don’t care, you can find no difference between aircraft types. No premium for a better airplane including even regional jets.”

    What does he mean by that? What aircraft types does he think should extract a premium? When it comes to the typical mainline fleet, the things that matter to the customer have nothing to do with the manufacturer and everything to do with how an airline configures it.

    As far as the dig about the regional jets, well, if his comparison is anything in the 50-seat or less category (I have in mind the CRJ and the Embraer 135-145 series here) I hate to break it to him, but these aircraft suck from a comfort perspective. They’re only marginally better than props. The EMB-170/190 series a different beast, however. Those flights are comfortable.

    With regard to the props vs jet debate, it’s one I fully don’t understand. (I used to work for a regional carrier operating a 19-seat Jetstream 32. I’ve heard the digs too.) But the digs I heard from passengers had nothing to do with the true shortcomings of the aircraft and everything to do with “OMG, I’m not getting on that thing.” Now what shortcomings exist? Well, the J32 doesn’t have a lav, but beyond that, the smaller props typically don’t have an APU, so the airplane can be really cold in the winter and really warm in the summer before the engines start running. Second, they do fly at lower altitudes, so I’m sure the ride is a bit rougher than the jets at higher altitudes. Third, it’s really easy to “bulk out” (a term we rampies used when we ran out of room in the cargo hold) the cargo hold and leave bags behind. Not to mention, props (and for that matter, the smaller RJ’s) don’t have any “premium seating” that the mainline aircraft do — things like exit row and bulkhead seating with extra legroom.

    But I go back to my first question and ask, “what fleet types does he think we should be paying a premium for, and why does he think it’s justified?”

    • stan says:

      i don’t think dougie’s comment meant that people don’t hate the RJs, because they do, what he meant is that a vast majority of air travelers are NOT changing their buying habits based on the equipment. it’s a price-driven business and saving $50 by taking an RJ over a 737 or A320 is what matters to most travelers.

      now business travelers may have a different (or at least LOUDER) opinion, but i think that unless there is an obvious shift in buying habits away from RJs, you will not see any change in their implementation.

      he makes a valid point.

      • CF says:

        Yes, I think you’re reading this backwards, Dan. Doug is saying that people won’t pay more for a certain type of airplane, including not paying more for an RJ over a prop. He’s not suggesting that it’s a bad thing – just saying that airlines shouldn’t make their fleet decisions based on what customers say because they won’t pay more for one plane over another. He’s not trying to get people to pay more, just trying to find the most efficient airplane.

      • Dan says:

        One thing that I don’t understand is how they try to make these comparisons (even thought I think they’re correct). It’s not as if they conducted a valid scientific experiment.

        I mean, many routes are served by a single fleet type, and market demand/volume determines the equipment. For instance, when I worked for UAX, most of our routes were either all RJ or all turboprop. For the sake of discussion, it would make no sense to run a 50-seat aircraft with higher costs on a route that could only sustain 34-seat turboprop service.

        Even on routes that have a mix of equipment, they run the larger aircraft at times of higher demand. So I get his point of cost minimization loud and clear… but why would it be anything but that?

        • CF says:

          There are a lot of ways to make this comparison. For example, Horizon flies Q400 turboprops on several routes up against regional jets. Also, the airlines can look at what happens when they replace a prop with an regional jet. American Eagle, for example, just got rid of all their Saab turboprops on the west coast and replaced them with regional jets. They could see if that makes a difference vs. the United Express Brasilia turboprops.

          • Dan says:

            Oh, I hope you don’t take my comments to mean that I think people *do* pay more to avoid turboprops, ’cause they don’t. Just that I wonder how they make that comparison.

            Cranky, at the beginning of the decade, Eagle was flying an all-RJ operation out of ORD, whereas UA still had some D328 props in use. Do you have any idea how Eagle’s jet operations stacked up against Air Wisconsin’s?

          • CF says:

            I don’t know off hand, but United did feel compelled to switch to regional jets to compete with American back then, so they either went on a gut feeling (which is possible before 9/11) or they saw a real need for it. I’m sure you can pore over govt data at bts.gov.

    • David M says:

      Try 9B or 9C (as designed on SkyWest aircraft anyway) on an EMB-120 sometime. This is the exit row on the starboard side of the aircraft, aft of the wing, and it has a lot of legroom. It does not, however, have a tray table.

  4. A says:

    I see nothing revolutionary coming out of the manufacturers.

    So the 787 is not revolutionary compared to what it’s replacing?!? I guess Doug Parker isn’t an aviation engineer.

    What matters to airlines right now is, consumers don’t care, you can find no difference between aircraft types.

    Well, if he’s talking about the difference between a 737 and A320, well sure, most people find zero difference and or care. Then again, I vividly recall in the early to mid 80’s flying domestic routes on DC-10 and L1011 aircraft quite frequently. Those same routes are all operated by narrow body aircraft today. I don’t think I’m alone here in saying that a widebody aircraft is worlds better in terms of comfort. And when the airlines first started flying that equipment (DC10/L1011) they hyped it up for its comfort. Do you ever hear ads about the comfort of a CRJ? So while most people don’t know the difference between a Boeing or Airbus, they do know the difference between a single aisle aircraft and a double aisle.

    • Dan says:

      But does it really? My seat specs are my seat specs, and I don’t really think the number of aisles makes my airline’s choice of seat spec any different. Granted, a widebody “feels” more open and spacious, but that doesn’t mean my knees aren’t buried in the seat back in front of me.

    • CF says:

      I think Doug is right. What is revolutionary about the 787? It uses composites for the fuselage, but that’s not a revolution. The design is the same, the propulsion system is the same. Now something like a blended wing would be revolutionary.

      And to your second point, whether people prefer one airplane over the other isn’t the issue. It’s whether they’ll pay for one airplane over the other, and from what Doug sees, they won’t.

      • A says:

        While the vast majority of leisure travelers will not pay more for a different equipment type, many business travelers do. Have a couple friends that switched Asia flying away from United to avoid their 747’s for example. I avoid CRJ’s when possible and have met many people that say they avoid AA and DL for the MD80’s. While this probably isn’t a significant enough number of frequent fliers to influence an airlines decisions, it does happen. WN used to have an ad saying that every one of their flights was on a mainline 737, which has traction. It’s nice to have zero surprises when it comes to the plane you will be boarding.

        • CF says:

          This is all anecdotal, but it also doesn’t necessarily point to the airplane. I imagine the people didn’t want to fly United because of the lack of entertainment or the fewer number of seats for upgrading. I can’t imagine it has anything to do with the airplane itself.

          In general, people will say a lot but then when it comes to spending money, they don’t necessarily act the same way. For example, you say you avoid CRJs, but how much more will you pay to avoid a CRJ?

          • A says:

            Cranky, I avoid CRJ’s when flying for business because I’m not paying, my client is. So yes, I’ve picked a flight that was easliy $150-200 more just to avoid regional equipment. For personal flying I’ll try to avoid a CRJ and would consider paying a slightly higher fare to be on mainline equipment, but probably not $100 or more.

  5. JayB says:

    Actually Cranky, as far as I am concerned, you can drag up something more from the symposium anyday things are a little slow, like…?

    A little unfair to generalize, but’s it’s still fun to, the CEOs are of the mind that “…customers don’t care…,” and I know it was in reference to aircraft types. Oh? And, if only that partnership between the government and industry were such that the industry would be left alone so they could compete. Sort of like, we got the customers where we want ‘em, now if we could only get the government and the regulators where we want them so we could blissfully spend time fighting competition!

    Incidently, Saturday night’s UA 950, IAD to BRU 763 blown tire on takeoff, and subsequent 2 1/2 hour, fuel burn-off back to IAD provided some interesting comments on what these CEOs should dwell on regarding customer service. A passenger on the flight, someone not too happy but pretty much resigned as to what to expect from the industry, commented on a FlyerTalk thread about how well the fight crew handled the matter, only to have all the goodwill destroyed by the UA customer service personnel on the ground. Perhaps you had some clients who you managed to help out?.

    • CF says:

      We had no clients on Saturday’s flight to Brussels. Not sure what the customer service problem was, but for many airlines, service recovery is a huge issue that they need to improve.

  6. Sanjeev M says:

    Interesting that Barger said just put a TV in every seat and no one will notice. That was probably a wink for Bryan and Republic to put LiveTV (JetBlue owned) in the E190’s and E170’s.

    Nice try, Dave, but it’s not happening.

  7. tharanga says:

    I’m glad that the jetblue CEO is bothered by the fact that their transcons sometimes need to refuel in the winter. I don’t know the stats, but it seems to happen too often.

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