It’s time for some sad, sad truth. Alitalia, long the worst airline ever, is no longer deserving of the title. Sure, it continues to lose a bunch money, but there simply isn’t the same level of awesome, headline-grabbing stupidity day-in and day-out. The time has come for a new king.

I tried to give the title to Mexicana while it was in its death throes, but something funny happened. It actually did the right thing and went out of business, so the title reverted back to Alitalia. But no more. It’s time to pass it on to a new, highly-deserving, poor excuse for an airline. The new worst airline ever?

Air India.

If you’ve been paying attention to Air India over the last few years, this will come as no surprise to you. This is an airline torn apart by three different competing factors (government, management, and labor), all of which are doing a fantastic job of destroying the airline. Add in the massive increase in competition over the last few years, and you have a recipe for disaster . . . deliciously enjoyable disaster.

Despite this high level of suck, I have faith that Air India won’t leave me hanging like Mexicana did. No, I can’t see it going out of business. It will just continue soldiering on in bureaucratic purgatory for years and years. Maybe we’ll see a restructuring here or a little shell game there to make things look better, but Air India will hopefully be around for awhile. How bad is it? It’s bad.

I turned to Vinay Bhaskara (@TheABVinay), now a contributor to Bangalore Aviation, to make sure I had all the info I needed. He provided me with a silly amount of information along with links that helped build this very obvious case for glory (or lack thereof). Let’s look at the tape . . .

Government
While the government can talk a lot about how Air India needs to reform, a huge chunk of the problem lies with the government itself. See, India looks at the airline as its own personal toy. Government officials makes it fly wherever they want, and they hands out favors to those they like. Last year, the government actually gave out free first class upgrades and lounge access for LIFE to state secretaries and former ministers.

As if that’s not bad enough, former Civil Aviation Minister Praful Patel made Air India deploy a larger airplane on a flight to the Maldives so that his daughter could have a seat in business class. Here’s a great article on how Patel really did his best to put Air India in the terrible, terrible position it’s in today.

One of the biggest issues? The forced merger of mostly international Air India and mostly domestic Indian Airlines has been an uncompleted nightmare. This has been the most ridiculous merger in ages with very little merging having occurred and instead just continuing bloat and inefficiency with massive infighting between the two factions.

What does the airline get in return for all this government meddling? Not much. The government apparently owes the airline millions of dollars for its transgressions, but it won’t pay up. Instead, it just convenes a committee to figure out what’s going on.

Management
But don’t think that the government deserves all the blame. Management has had its share of incompetence. One of my favorite stories was about Air India spending millions on new tableware before realizing that it couldn’t use what it bought to actually heat the food. That’s a small mistake in the scheme of things but it’s quite telling of how things are (or aren’t) thought through.

That same greedy governmental grab for perks exists within Air India itself, including lavish spend on housing for its boss. The airline’s chief also upgraded his family despite telling others at the airline that they couldn’t do the same.

But there are much bigger mismanagement issues as well. How about the massive cargo operation that has to turn cargo away because it doesn’t have enough staff to unload it? This from an airline that has thousands and thousands of employees who simply do not need to be there at all. Those people apparently just aren’t in the right place.

The same thing happens with maintenance. Air India outsources some maintenance despite having slack capacity to do it in-house. It has thrown away money by shifting pilots back and forth in training without actually having them fly. And now it’s looking at expansion on ill-advised routes like Delhi to Melbourne. This is all like a bad dream.

Labor
Perhaps the most amusing Air India side-story is that between management and labor. Management gave in to the pilots thanks to a labor disruption, just like United did after the summer of 2000. The only difference? United was still making money at that point (though not for long), and the pilots wanted a bigger chunk. With Air India, the airline is bleeding and the pilots STILL want more cash.

There seems to be this entitlement feeling among the workforce that pay raises are in order regardless of the massive hemorrhaging in the airline’s financials. As long as labor gets what it wants, it assumes the airline will never go under.

The entitlement feeling seems to be pervasive. I really liked this story about a purser who delayed a flight because he wasn’t given a special meal that he had requested at the last minute. Sure, some complaints are legitimate, like severe understaffing. But at a time when Air India can’t even pay the salaries on the books, why push for more pay and then strike when you don’t get it? It’s like pulling the plug on your ailing grandmother even if she’s not necessarily a terminal case.

What Now?
So where does all this insanity leave the airline? Screwed. It’s broke, and it can’t run itself properly. Its small domestic route structure (excluding the Indian Airlines flights) managed a 22 percent load factor, though I can’t imagine we’ll see much change with this lumbering behemoth.

In May, it couldn’t even afford to pay the inflight entertainment fees and had to go dark on its long haul fleet until it was resolved. This is brilliant.

All of these problems have led to a huge embarrassment: the inability of Air India to get its act together in order to enter into Star Alliance. That would have brought a great deal of new revenue through partnerships in the largest alliance in the world, but that alliance got sick of waiting for the airline to stop sucking. The entry into Star Alliance is now off.

There’s talk of now trying for SkyTeam. If Aeroflot, Garuda Indonesia, Vietnam Airlines, and others can get themselves into this alliance, then surely Air India can, right? I wouldn’t be so sure. This airline is one giant mess. With little chance of much changing but also little chance of it going out of business, I’m feeling pretty good about transferring the title of worst airline ever to a most deserving airline.

Congratulations, Air India.

It’s now official. Delta has decided to order a hundred 737-900ER aircraft. These aren’t the new engine versions but just plain old 737s, stretched to an insane length. With so many airlines ordering Airbus A320neo aircraft and showing great interest in Boeing’s proposed re-engined 737, why would Delta go with the old 737-900ER? My mind instantly went to baseball.

Before we talk about America’s pastime, let’s talk details first. Delta ordered one hundred 737-900ER aircraft to begin replacing its 757, 767, and A320 fleets. I assume this can replace some of the A320s coming off lease as well as the older domestic 767s. Add the 757s on top of that, and this is only a start. The airline will need a lot more airplanes to completely replace these fleets. My assumption is that you’ll see these fit right in with the domestic and Caribbean route structure.

The 737-900ER holds almost as many people as a 757. Continental has it configured with 173 seats right now in a similar configuration to what I’d expect to see from Delta, so it’s maybe a 10 to 15 seat cut versus the 757. It doesn’t have the range of the 757, so it’s not going to be serving Europe anytime soon. But there is plenty of room for this airplane to take over within the US for Delta. But why bother?

Most airlines have been clamoring for the re-engined A320 and 737 families and the promises of lower fuel burn. American may have ordered current generation aircraft, but that’s to replace its MD-80s, which it sees as needing replacement sooner rather than later. So why wouldn’t Delta just wait and order airplanes with newer engines since its existing fleet still has a few good years left?

It’s because Delta seems to look at the world in a different way, and that’s where baseball comes to mind. If you’ve read Moneyball, you know the story of the Oakland A’s. Being a small market team, the A’s couldn’t compete on revenue so they had to get creative to build a competitive team. They decided to flip baseball’s knowledge on its head. The A’s believed that the traditional way of valuing players wasn’t necessarily the best judge of actual performance and there were other metrics to use that would help Oakland build a team without breaking the bank. It worked and Oakland was initially able to create low dollar, high quality playoff-bound teams.

I see a similar thing going on at Delta. Everyone is clamoring for the newly-engined aircraft to the point where Boeing was forced to announce the new 737 before it wanted, just so it could win an order from American. But Delta sees that fever for new engines as providing an opportunity for it to do something different. Take a look at this quote from CEO Richard Anderson:

A key component of Delta’s strategy is making prudent investments for the future while maintaining our financial and capacity discipline

Yes, better fuel efficiency is very important, but not if the initial cost of buying that fuel efficiency is so high. This is how Allegiant justifies buying MD-80s, and it’s how Delta seems to be looking at its current fleet decisions. (It also explains why Delta has been buying up MD-90s on the used market.) These airplanes do still provide better fuel efficiency over the existing fleet, but the initial cost is much less than going for one of those newer-engined aircraft. The math works for Delta because of the way others behave.

We don’t know anything about Boeing’s pricing of its re-engined 737 yet, so let’s look at Airbus for an example. An A321 lists for $99.7 million. The new engine option is an additional $6.2 million. That might not seem like a huge difference, but remember that we’re talking about list prices.

With the A320neo selling like hotcakes, you can bet that the discounts wouldn’t be as steep compared to the current generation models. Think of it as a year-end model clearance. Cal Worthington would be proud.

Lower acquisition costs give the airline more flexibility. When you have higher variable costs and lower fixed costs, you can think about scheduling your fleet in different ways. It gives you some flexibility that Northwest has known about for years. Why do you think those DC-9s are still flying 40 years down the road? They’ve been a great asset for the fleet, even if their time is finally coming to an end.

Now, it’s not like Delta is a small market airline and can’t afford more expensive airplanes. It’s just seeing a piece of the market that’s being undervalued and is trying to take advantage. That’s smart.

Flier comfort: Boeing 787 myths and facts – CNN Out of the Office
The 787 will finally be in service in the next couple of months, and that means it’s time to look at what benefits it will really provide to travelers.

United Continental to spend $550 million on upgrades – Cleveland Plain Dealer
More talk about United’s product enhancement plans.

We might be used to quakes on the west coast, but the one in Virginia this week took a lot of people out there by surprise. Anyone have any good air travel stories surrounding the quake? Were you delayed or canceled? Were people unnecessarily freaking out?

We’ve got a guest post today looking at Southwest in Atlanta. As I wrote before, I like the way Southwest is handling the merger from an operational perspective, but will it work out financially? Here’s one take. Do you agree?

For more than a decade, the conventional wisdom has been that the legacy carriers are ultimately doomed and that Southwest Airlines will take over the world – or at least its air transportation needs. Nowhere was that supposed to be more true than in Philadelphia, a market Southwest entered in 2004, fully expecting to take over the hub operations of a dying US Airways. But a funny thing happened on the road to this inevitable victory: US Airways fought back, and it is now Southwest that is in retreat in the City of Brotherly Love.

Philadelphia, however, is only a skirmish compared to what’s ahead. A much bigger battle is looming in Atlanta, where Southwest’s acquisition of AirTran has put the airline on a collision course with Delta Air Lines. As in Philadelphia, Southwest enters this market with high expectations. But as explained below, it is by no means inevitable that Southwest will thrive in Atlanta. If it does not, the era of Southwest’s industry ascendancy will end, and the U.S. legacy carriers – with their home turf secured – may enjoy a far more stable future . . . until the next major challenger rises to the occasion.

To understand why Southwest might disappoint in Atlanta, we need to look at what happened in Philadelphia. Last month, Southwest quietly revealed that it was pulling out of 4 additional short and medium haul Philadelphia markets, and reducing frequencies on other routes. This brought to 11 the number of Philadelphia routes that Southwest has entered and subsequently exited in Philadelphia. Aviation Consultant Mike Boyd has provided the data which explains the reason for this pullback. Quite simply, Southwest was getting its butt kicked.

On the soon-to-be-terminated Philadelphia-Pittsburgh route – a classic short-haul, business-oriented market (in other words, a “perfect” Southwest route) – Southwest’s load factor was 20 points less than that of US Airways. And on the tickets it did sell, it got 11% less for them. In the even more important Philadelphia-Boston market, where Southwest is reducing service but not yet exiting, the results look even worse. There, US Airways has an almost 30 point load factor advantage and an astonishing 40% yield premium over Southwest.

The only conclusion that can be drawn from these results is that Philadelphia fliers, especially the business travelers who buy higher-priced tickets, have preferred to stick with US Airways rather than give their business to Southwest. There are many reasons to believe the same could be true in Atlanta. Why? First, as has been demonstrated repeatedly, it is very difficult to make money playing second-fiddle at a major hub airport. Delta is gargantuan compared to AirTran in Atlanta – approximately three times the size of its smaller rival, with a global reach, a massive entrenched frequent flyer program, and a corresponding ability to schedule far more frequencies between city pairs to allow travelers to fly exactly when it is most convenient for them.

Of course, these are the same hurdles that AirTran had to overcome to build its presence in the Atlanta market in the first place. But it did so at a time when AirTran’s unit costs were much lower than Delta’s. Back in 2004, AirTran’s CEO claimed he could fly a passenger for 35% less than it cost Delta looking at stage length-adjusted unit costs. It is difficult to know what cost advantage Southwest will have over Delta, but it is certainly far smaller than 35% considering Delta’s costs have come down while Southwest’s climbed since 2004. And AirTran’s incredibly low cost structure will likely climb to Southwest levels very quickly as the merger progresses.

Even with its significant cost-advantage, it is not as if AirTran has truly thrived in Atlanta. “Survived” is a more accurate description. Where it competes head-to-head, Delta has shown revenue premiums of 30 percent or more (remarkably similar to US Airways’ premium over Southwest in Philadelphia). Lower revenues and lower costs have generally enabled AirTran to eke out tiny profits. Last year, for example, AirTran made $38 million. And so far this year, AirTran has apparently been modestly unprofitable, even as all the legacy carriers (except American) have made money.

To produce even this break-even level of financial performance (assuming oil prices do not decline), Southwest is going to have to significantly boost unit revenue from the current AirTran network. For while the combined airlines will undoubtedly have some cost-saving synergies, the 800-lb gorilla in the closet is going to be the expense of bringing AirTran’s relatively low paid workforce up to Southwest’s best-in-industry wages. For example, a Southwest pilot now makes about $260 an hour. An AirTran pilot makes about $100 less.

Boosting these revenues may not be easy for Southwest. First, it plans to give up checked-baggage and change fees, putting it at a significant revenue disadvantage to Delta — which can charge the same base fares and still collect this additional ancillary revenue. Southwest will also be eliminating some of the in-flight perks valued by AirTran’s business customers: a separate business class cabin and seat assignments. Southwest may also face push-back from its new frequent flyer program which can be far less generous than AirTran’s, especially for passengers buying discounted tickets.

Finally – and unlike in Philadelphia – there are virtually no under-served Atlanta markets for Southwest to stimulate with its famous low fares (which are now a lot higher than they used to be, but still cheaper than what legacy carriers typically charge when they don’t face competition). AirTran already flies to nearly all of the places Atlanta travelers want to go. So if Southwest is going to make money in Atlanta, it is going to have to do it largely on the routes AirTran already serves.

Bottom line: Atlanta will be a challenging environment for Southwest. Failure may have been an option in Philadelphia, but it is not an option in Atlanta. Unless Southwest rises to these challenges, what we think we know about our domestic aviation industry is again about to change.