Cranky on the Web (February 7-11)

Airlines Start Tightening Belts as Fuel Prices RiseBNET Headwinds
Fuel prices are on the rise and that means it’s time for airlines to start revisiting growth plans. Delta’s already done it.

Low-Cost Airlines: Increasingly Flying to a Major Airport Near YouBNET Headwinds
Secondary airports used to be the place to find low cost carriers, but they’re now increasingly moving toward primary airports.

Why airline fees are good for travelersCNN.com Out of the Office
I’m now writing a new weekly CNN.com column entitled Out of the Office. I started off with a very controversial topic, and the reaction was, um, stiff. People aren’t nearly as civilized with their comments on CNN.com, that’s for sure.

US Airways: Why We Don’t Bother Hedging Jet-Fuel PricesBNET Headwinds
US Airways doesn’t hedge, and so far it’s paying dividends. See why the strategy makes sense for the airline today.

Google-ITA Rewards Orbitz and Undercuts Merger Opposition at the Same TimeBNET Headwinds
ITA signed a renewal with Orbitz and that might have some impact on whether or not Google’s effort to buy ITA gets approved.

In the Trenches: Getting Help with HiringIntuit Small Business Blog
After realizing that hiring on my own wasn’t going to work well, I looked elsewhere for help.

Heathrow-Virgin Spat: Virgin Caves, but Wins the PR BattleBNET Headwinds
Virgin Atlantic’s effort to withhold funds from BAA has failed, but the war is still ongoing.

Delta ranks near bottom in on-time performanceAtlanta Journal-Constitution
I was asked whether a poor on time performance record would make fliers consider alternatives. Yep.


7 Responses to Cranky on the Web (February 7-11)

  1. Brodie says:

    I’m certain that 95% of Delta’s complaints stem from the rude and crude NWA employees they inherited from the merger. I have been a die hard DL flyer for over a decade. This past December I was unprepared for the outrageously disgusting attitude I witnessed on three legs. It was horrible rudeness and lack of helpfullness. I’m certain these staff were inherited based on the fact we were flying older NW equipment. Even several months after the fact I’m still disgusted. They deserve this ranking.

    • Sanjeev M says:

      Not so sure about that. DL and NW crews are now very mixed and I know some PMNW F/A’s who are based at ATL or JFK and PMDL ones based at MSP. They can work side by side on any aircraft so I wouldn’t be so sure.

      If you think Delta people have attitude problems, wait till you see CO/UA.

  2. David says:

    You’re looking at Delta’s approach to cutting costs on fuel from the wrong perspective.

    To an airline, the average cost of fuel per flight or per RPM across the network and whether the airplane is paid off or not is irrelevant – this is just summarising for the benefit of 3rd parties. What really matters is stopping or reducing those flights which make a loss when fuel prices are high.

    If an airplane is not yet fully owned and the airline doesn’t have the capacity to return the aircraft to the lender (be it by bank debt, lease or otherwise), those payments need to be made whether the plane sits on the ground or is in the air. Failure to do so generally consitutes default, which leads to Chapter 11 and the court house. Thus, those future debt payment need to get paid regardless of whether the plane is in the desert, at 35,000 feet or anywhere else.

    To consider it in accounting terms, is the cost a sunk cost (over which we have no control), or is it a variable cost (over which we do have control) ?

    What really matters, is whether the cost of operating a particular flight (fuel, airport charges, navigation charges, staff salaries) exceeds the revenue from ticket sales on that flight. Of course, with a network airline, how you apportion revenue on a connecting itinerary has an impact, but it’s this marginal cost of flight operation that needs to be considered.

    • CF says:

      It’s not quite that easy. If you have 10 airplanes that you have to pay for each month, then you want to fly them as much as you can in order to spread your fixed costs out over more flights. If you fly them less, then you have fewer flights over which to spread your fixed costs. So what you think of as fixed costs aren’t actually fixed in the sense that varying amounts can be applied to each flight depending upon how much they’re flying. If you own the airplane, none of that matters. You could fly the airplane 1 flight per day and the same amount of fixed ownership costs apply to that flight as if there were 6 flights per day because there aren’t any.

      Let’s say you pay $100,000 per month for an airplane and you only have that 1 airplane. If you fly that airplane 10 hours per day every day in a 30 day month, then that’s 300 flights. Your fixed ownership costs are $333 per hour. But if you only fly them 5 hours a day, then your fixed ownership costs are $666 per hour.

      I understand that you’re paying for those airplanes no matter what, but you still need to ensure that you’re flying profitably on a fully allocated basis or you won’t exist for very long.

      • David says:

        CF – still not quite convinced.
        Suppose an airline has a single plane, which it flies on a single route. Suppose that in the morning and evening peak periods, lots of customers are happy to pay high fares meaning the flights are very profitable. Suppose also that from late morning to mid afternoon, demand is very low – so low that the ticket sales do not cover the cost of fuel + navigation charges + other variable costs associated with operating a particular flight

        Yes, by flying sectors from 10 am to 4 pm, the airline spreads its fixed costs over more flights. However, any sectors from 10 am to 4 pm are making a marginal loss – better to avoid the additional loss and keep the plane sitting on the ground

        Northwest were conservative in the sense that they set capital investment to be very low, and kept their old (fuel inefficient) DC-9s on the assumption that oil prices would not go too high. If Northwest were still independent today, fuel at US$100 per barrel would be putting Northwest through large amounts of pain.

        When ordering a new plane, it comes down to whether the present value of all the extra fuel costs + additional maintenance on an old less efficient plane outweighs the capital cost of the new plane over a 15 year period. If we assume fuel stays cheap in the future, one tends towards keeping planes in the fleet for longer. If we assume fuel is expensive and that new planes guzzle much less fuel, then airlines tend towards buying new airframes

        • CF says:

          Well, let me back up a little here. If you can’t even cover your flight variable costs, then it doesn’t matter what your fixed costs are. You shouldn’t be flying that flight unless the network contribution is so great that it’s worth losing money on that one flight. (That’s a subject for another time.) Covering flight variable costs is the lowest hurdle to cross, and that becomes a bigger hurdle as fuel prices rise. I think we agree on that.

          I think the problem is that there are both flight variable costs and aircraft variable costs. If you own an aircraft outright, you can park it and not have to pay any of those aircraft variable costs like maintenance, compliance, etc. If you’re leasing the airplane, you can’t just park it and forget about upkeep. You have an obligation to the aircraft owner or the lender to avoid doing anything to reduce the value of that airplane. That means that things that might be considered aircraft variable costs aren’t necessarily as variable on an airplane that’s leased out.

  3. Micko says:

    I heard today that Easyjet are trying a new ‘nano’ paint which ads a very thin film of some paint like substance making the surface of the aircraft super smooth reducing friction so using less fuel. I hope it works better than the mirriad of ingenious devices (or cons) which have been invented to get more miles per gallon out of your car, but never actually work. I hope it does work though because less fuel means less pollution. Maybe they ought to make the skin of aircraft like the skin of a shark. That is supposed to super efficient under water so it may work in the air. Have you ever seen shark skin under a powerful microscope, its awesome.

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