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.

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