Earlier this week, Southwest publicly announced its first schedule changes for its new AirTran subsidiary. The changes, though small, give us a lot of insight into how Southwest is thinking about its AirTran purchase. It’s actually kind of exciting.

When Southwest purchased AirTran, it had to make two quick moves. The first was the pull out of DFW. We already talked about that here. The second was to end AirTran’s regional partnership with SkyWest. SkyWest had been flying to smaller cities out of Milwaukee, but that couldn’t continue under Southwest’s deal with its unions. (And Southwest probably wouldn’t have wanted to continue it anyway.) So it disappears on September 6, but unlike the DFW decision, this one opened up more questions. Would Southwest try to continue serving some of those cities served by SkyWest or would it walk away? Now we know. Here’s what will happen on September 6. All of these are to/from Milwaukee:

So why do I say this is exciting? Because there’s a lot we can take away from this.

First, it’s important to know that SkyWest was flying these flights at its own risk. It shared revenue with AirTran, but AirTran didn’t have to reimburse SkyWest for costs. SkyWest had planes sitting on the ground and thought this would be a good use for those airplanes. Why is it, then, that Southwest/AirTran ends up canceling those markets with more flight frequencies? Wouldn’t you expect those to do better? Not exactly.

The difference is that Indianapolis, Omaha, and Pittsburgh are already in the Southwest system. You can fly Southwest from those cities and connect to just about any other city in the Southwest network. In other words, SkyWest was bringing people into Milwaukee and connecting into a hub operation on AirTran. Southwest no longer needs that because it already has ways to flow those people into the Southwest system.

Akron/Canton and Des Moines, however, do not have Southwest service yet. In fact, these had been two hotly-debated cities. How (if?) would Southwest continue to serve them after the merger? That fact that Southwest has decided to upgauge these flights to be on 717s is good news for them. And it shows that Southwest really does want to use those 717s to open up mid-size markets that it doesn’t serve today.

I actually wouldn’t expect these cities to necessarily keep service to Milwaukee in the long run. Today, the only other AirTran flight in Des Moines is a weekend service to Orlando. Without Milwaukee, Des Moines is an island. Akron/Canton is different with a lot of service up and down the east coast. But Milwaukee is the only real gateway to the west (unless you head south to Atlanta first).

Once the Southwest and AirTran systems merge, you might see that shift to Chicago/Midway because Southwest can flow more people into the system that way. That’s a powerful thing and it should allow the airline to serve some of these smaller cities in a way that AirTran couldn’t alone. This makes it clear to me that Southwest wants to stay in those markets. That’s what’s exciting.

St Louis seems like a different story to me. Southwest has slowly been ramping up in St Louis since American pulled down. This is just another route that Southwest probably thinks can work now so it has put some airplanes in there. It will also start flying Milwaukee to Denver once a day to complement AirTran’s single daily service. So we might be seeing the beginnings of an aircraft routing optimization project.

In the end, this is great news for Southwest loyalists who want to be able to fly to smaller cities. It’s also great news for the small to medium-sized cities that have been trying to attract Southwest for years.

[Original photos via Flickr user wbaiv, Flickr user cliff1066™, and Wikimedia Commons/CC 2.0]

If you decide to put out bad analysis, as UNITE HERE did last week regarding Lufthansa complaints, and someone calls you on it, what would you do? The smart answer would probably be to just let it go and stop calling attention to the work, especially since it has more holes than Swiss cheese. But fortunately for us, UNITE HERE has decided to go the opposite route.

The union is using one of oldest tricks in the book: going after my credibility to muddy the water. This is just dumb. They really shouldn’t want to bring more attention to a flawed report like this. Now I’ve just dug in deeper and found even more problems with it. While I was waffling before, now I’m not. UNITE HERE has truly earned the Cranky Jackass Award.

You can read the union’s entire response here (pdf) if you’d like, but I’ll pull out the most fun parts. Let’s start with the opening.

One of the things I appreciate about your site is you are very open about your relationship to companies in the airline industry. And just one month after Lufthansa gave you a free round-trip, business class ride on its A380 from San Francisco to Frankfurt, perhaps I should not be surprised at your dismissive response to my report.

Ah yes, the back-handed compliment. A time-honored tradition that’s used to cover bad work. If someone calls out real issues, just call his or her credibility into question but look completely pleasant while doing so. This takes the focus off your bad analysis and tries to shift the issue. (Sounds like the author may have a future in politics.) It’s true, I’m very open about these things, and I did just fly Lufthansa at the airline’s expense. That doesn’t mean I won’t gladly rip Lufthansa a new one if it’s deserved. The problem here for the union is that it’s not.

You can read the rest of the response yourself if you’re interested in more sugar-coated insults, but let’s focus on the weak defense of the report itself and break that down.

The Department of Transportation data in the report is real, and to my knowledge is the only reliable U.S. source of compiled complaint information on international
airlines. If the DOT is willing to use these numbers to “to determine the extent to which carriers are in compliance with federal aviation consumer protection regulations,” then they’re good enough for me. Even if I am just a research analyst at a union.

*sigh* The issue is not whether this is the only place to get complaint data or not but whether or not it’s statistically valid and can be used to explain a trend or not. In this case, the year-over-year change in complaints from 2009 to 2010 moved by roughly less than one-thousandth of one percent over total passengers carried by Lufthansa to and from the US (using my rough passenger estimate). Even the initial number itself is so tiny that it’s not significantly different from zero. So regardless of what the purpose of the complaint reports are in the eyes of the DOT, that doesn’t magically mean that we can consider each number valid for any kind of analysis.

You’re right, I could have used the raw numbers, but I sort of agree with you that the raw numbers themselves aren’t incredibly exciting on their own. They’re small
because, well, how many people actually go through the effort to submit their airline complaints to the U.S. government? (If you care about an answer, you can look at the DOT analysis for the new passenger rights rule, where the DOT uses the ratio that every 1 complaint submitted to the DOT represents about 61 complaints submitted to the foreign airlines.

Excellent. Let’s just forget about using raw numbers because they aren’t “exciting.” I see. So we’re not looking for statistical validity here. We’re looking for excitement. You can apply any ratio you want to these numbers, but that still doesn’t make the small change valid. And this ratio is just an estimate by the DOT anyway, so using it would make a statistically insignificant change even less valid, if that’s possible.

The result of that comparison was clear. Lufthansa complaints went up, Air France and British Airways complaints went down. Is the sample number of complaints
small? Yes. But if the increases were random, would Lufthansa have seen them in 7 out of 8 top categories from 2009 to 2010? If they were random, wouldn’t Air France and British Airways have seen more fluctuation too?

This is my favorite part. I hadn’t even touched the Air France and British Airways numbers in my initial post, so I should thank the union for giving me even more firepower to show how awful the analysis is. The result is far from “clear” as proposed.

When I spoke with the research analyst, he told me that he didn’t bother looking at the monthly complaint reports. He just looked at the year-end summary and called it a day. That makes the analysis even worse because it doesn’t look for outliers. And that’s exactly why BA’s numbers are so different. In 2009, BA saw 347 complaints while dropping to a mere 120 in 2010. That’s great improvement, right? Wrong.

A look at the monthly data shows that in October 2009, BA received an incredible 244 complaints for reservations/ticketing/boarding. Why? According to the Bureau of Transportation Statistics, “The increase in the number of October complaints is attributed primarily to British Airways’ erroneous offer of $40 fares between the United States and India.” That’s an outlier and can’t be used to judge overall performance for an entire year. Guess what happens if we just substitute a more typical monthly result that month? We see an increase in complaints year-over-year approaching 20 percent. Fun with numbers, right? (Not that this is a significant change either.)

I highly recommend reading the entire response. In particular, I like the union’s effort to call into question the safety of the engines on the A380. Enjoy.

This may sound crazy, but hear me out. There were two separate pieces of news last week concerning Virgin America and Frontier that got me thinking about a combination between the two. Both are low on cash and need to raise more. This is one way to do it. It may not be a good idea, but that’s never stopped airlines before.

The first piece of news was that Virgin America posted yet another awful loss in the first quarter of the year. How bad? The airline posted a negative 14.7 percent operating margin and a negative 22.2 percent net margin. There’s only $25 million in cash in the bank. Not good, but not surprising either.

On the other side, we saw Frontier parent Republic strike a deal with the pilots union. If the union members vote for the deal this week, they will agree to postpone a pay raise, cut back benefits, and extend the existing contract for an additional two years. In return, Republic will start a profit-sharing plan, put growth requirements out there for aircraft, begin the restructuring program by the end 2011, and raise cash.

How will the airline raise cash? Republic will raise “at least $70 million . . . through one or more debt issuances or other financings,” and the company will make a “good faith effort . . . to attract equity investment(s) in Frontier that would reduce the Company’s ownership of Frontier to a minority interest by December 31, 2014.” That’s right, Republic will do its best to become a minority shareholder in Frontier, effectively letting Frontier go it alone once again.

With this scenario set, I started thinking about a combination between the two. Frontier isn’t going to be able to get that $70m+ loan for cheap . . . unless Sir Richard Branson provides the loan at a low interest rate.

Meanwhile, if Virgin America buys a majority stake in Frontier, Branson will have his share in the combined airline diluted, so he can pump more money in to get back to the 25 percent foreign ownership cap. That seems crazy to pour more money into two airlines that are losing money, but a lot of the airline business is driven by ego and dreams and not business sense. (Reason #518 why the airline business has always sucked.) Then he would just need to find some other money people (American citizens, of course) to put more money in to help pad the cash cushion and provide the rest of the equity. That’s probably the hardest part.

For Republic, this makes some sense. It would undoubtedly keep flying Embraer 190 aircraft for Frontier but on a more traditional express capacity purchase arrangement. I imagine a deal like this could include deploying more of those airplanes into the current Virgin America system. So Republic gets out of Frontier (mostly) but keeps its airplanes flying with the new airline. The only thing it has to lose is its remaining investment in the combined airline, if it thinks that the airline’s fate could be worse than its current predicament (something that’s not entirely clear). Besides, who else is going to pony up the cash for Republic?

The rationale for Virgin America is less convincing. If Virgin America does this and takes over Frontier, it will undoubtedly end up standardizing around the Virgin America name and product. It can use that as part of the pitch to the money men. Can’t you see it? “Frontier is too similar to Southwest right now, so we’re going to leapfrog Southwest and create a killer product that will take people away from Southwest in droves.”

Does the Virgin America product work in Denver going up against heavy competition from United and a growing Southwest, regardless of product? I doubt it. People might like it, but they aren’t going to pay a lot more for it. And Virgin America’s superior product doesn’t come cheap. Besides, a lot of the flights from Denver are in the 2 hour range, when the onboard offering doesn’t matter nearly as much as on longer flights.

I know, this sounds crazy. Combining two airlines in trouble usually doesn’t make sense . . . or does it? America West and US Airways successfully did just that, but that was a different story. America West management went into US Airways in bankruptcy and cut costs, ditched airplanes, and basically cleaned the place up. The money flowed and that was a successful merger. (You can talk about the pilots not being merged if you want, but neither airline would exist at this point without that merger. It was successful.)

The problem here is that Virgin America and Frontier don’t have nearly as compelling of a story. What changes? Virgin America brings its brand to Denver and makes a better (pricier) product offering available. There are no great “synergies” between the two that will help wring out costs. But it does create a larger airline . . . with more cash. That doesn’t solve its problems but it buys more time to try to solve them.

Ultimately, something needs to happen with each of these airlines. They’re both short on cash and Republic has made it clear that it is in the market to raise money as part of this pilot deal. I just don’t see Branson backing down from Virgin America, so would he dig a deeper hole? This is the kind of scenario that, while not really making much sense to me, wouldn’t shock me at all if two things happen.

1. Branson would have to decide he’s willing to pour more money in the airline.
2. Branson would have to find more people willing to put money in as well.

What do you think?

[Original Virgin America Photo via Flickr User dtweney/CC 2.0]

Bin space and the airline boarding debacle – CNN Out of the Office
This week, it’s time to take a look at boarding and the race for bin space.

In the Trenches: Hiring an Intern – Intuit Small Business Blog
Cranky Concierge now has an intern. (Welcome, Dave!) Looking for an intern was a good plan for us.

This is just way too cool. A reader who asked to be identified as Johosofat had a project in his high school ceramics class to make a slab relief of a mythical creature. He chose the Cranky Jackass. . . .

How awesome is that?! I almost gave the award to the union in yesterday’s post, but I think I really need to keep it for something special. After all, it’s now been elevated in stature with this rendering. Let’s see who does something deserving next.

Thanks, Johosofat!