Yesterday, Allegiant announced that it would add a third aircraft type to its stable. The airline’s first A319 will be delivered in the fourth quarter of this year and Allegiant will take a total of 19 aircraft to start. I’m not surprised that Allegiant went this route, but I guess I am a little surprised at the timing.

After a few fits and starts, Allegiant found its groove by picking up airplanes nobody wanted. Airlines didn’t want the MD-80 because the fuel and operating costs were higher than newer models, but because the airlines didn’t want them, Allegiant could get them for cheap. Low ownership costs plus higher operating costs still made for a great deal and Allegiant grew to have 58 of the airplanes, making bank all along the way.

But the MD-80 couldn’t serve every route Allegiant wanted. The first effort to stray was to get some 757s to fly to Hawai’i. But the 757 is a big airplane so it’s hard to see how it could really fit into Allegiant’s style of service on the mainland.

Allegiant could have continued to buy MD-80s (there are still hundreds of them flying), but the airplane has limitations. It’s a runway-hog and can’t operate off of some smaller airports. Gary, Indiana comes to mind as a place that initially had Allegiant’s service canceled because of runway issues. Also, the MD-80 doesn’t have excellent range for some of the longer routes Allegiant might be interested in serving.

So it’s no surprise Allegiant would be interested in newer airplanes that fix that problem. I always thought some of the longer range 737-400s and -300s that US Airways has been getting rid of would be good airplanes. But Allegiant leapfrogged that idea to a newer airplane that’s certainly lower cost to operate. The reason I’m surprised about the timing is that I can’t believe ownership costs have dropped enough on a current generation model that it made sense for Allegiant to go that route.

A319 Freefall
But that appears to be exactly what’s happening with the A319. Think of the A319 – who wants it? Most airlines are moving toward larger airplanes with their narrowbody acquisitions. Southwest built its operation on the similarly-sized 737-700 but it is currently taking delivery of a bunch of larger 737-800s. Delta and United have gone even bigger with 737-900 orders. And US Airways is retiring 737s in favor of much larger A321s. Only American really wants A319s at this point in the US.

More importantly for Allegiant, Cebu Pacific no longer wants its A319s and instead wants A320s. Also, easyJet has been slowly shedding its older A319s for the last year. So larger airplanes are doing well, but the values of the A319s are apparently collapsing quickly. Allegiant posted this slide in a presentation on the A319 acquisition:

This chart assumes that Allegiant keeps the same low utilization of 8.9 hours a day that it has today on its MD-80 fleet. As you can tell, the ownership costs are double those of the MD-80 but the savings are much greater in terms of maintenance and fuel. (Allegiant learned the hard way that maintenance is expensive when it spent millions on rehabbing engines.) If utilization goes up, savings go up as well.

Packing ‘em In
So when others don’t want the A319, Allegiant can pounce. But Allegiant is going for a very specific type of A319. It is leasing all 10 of Cebu Pacific’s airplanes along with 9 that were operated by easyJet. What’s so special about these? They have two overwing exit doors on each side while just about all the others have one. Why the difference? Well, the additional exits mean they can jam in extra seats above and beyond 145. Allegiant will operate these airplanes with 156 seats. For comparison, JetBlue puts 150 seats on an A320, a much bigger airplane.

This is a little surprising since those 6 extra seats above 150 mean Allegiant will need another flight attendant onboard. It’s hard to imagine that’s worth it. Maybe one of these days Allegiant will pull a row out, but that’s not the plan for now. For now, it’s all about cheap fares and jam-packed airplanes.

There’s good news and bad news with this. The good news is that these airplanes can fly further and into airports with shorter runways, meaning new routes could be opened up. The bad news is, your knees are going to pay. That’s not too bad on a short flight, but if these airplanes do start stretching their legs across the country, then it might be a tough to take.

On Friday, Delta announced that it would shut down its regional subsidiary Comair. This has been expected for some time so the announcement wasn’t exactly breaking news. What was more interesting was how carefully Delta crafted its press release on this matter.

Just because it wasn’t a surprise doesn’t mean it’s not sad to see Comair go away. The airline was one of the earliest Delta Connection carriers and has been affiliated with Delta for almost three decades. The airline’s heyday was in the early 1990s. It was the first US airline to begin the RJ revolution when it started flying the 50 seat CRJ in 1993. The next year, it opened a state of the art regional concourse at its home-base in Cincinnati. Things were going very well. In fact, the airline had done so well in the 1990s that Delta purchased it in 2000 for over $2 billion.

But things went downhill quickly. The airline suffered through a nasty pilot strike in 2001 that shut it down. It was then that airlines realized diversifying operations across multiple carriers in a hub was so important to keep things moving. The strike was over low pay, but there’s a problem with that. When the airline isn’t a brand at all (read: any regional airline), the branded partner can just replace it with lower wage options. And that’s why Comair with more than 100 jets flying became Comair with a plan for fewer than 30 until the shutdown happened.

Comair’s costs were too high compared to other regional partners and that doomed the airline. As an Oliver Wyman report noted using 2010 numbers, the gap was huge. Comair could fly a CRJ-700 for 11.3 cents per available seat mile (ASM). ASA could do it for 6.8 cents on a similar average stage length.

Comair had already lost all of its 50 seat jet flying and was holding on to 28 airplanes with 70 to 76 seats. Having so few airplanes meant that costs would go even higher. The end was clearly coming. The recent Delta pilot contract sealed the deal. With Delta needing to drop more than 200 of the 50-seaters, the airline has a problem. It has to find a way to convince SkyWest to shed a lot of those 50-seaters despite there being a contract in place for them.

I have to assume that Comair’s 28 bigger jets can be dangled in front of SkyWest as a carrot for playing nice on the 50-seaters. Delta also needs to get Pinnacle to reduce the number of 50-seaters but since that airline is in bankruptcy and receiving financing from Delta directly, it will be easier to fix (or possibly just kill as well). With all this happening, there just wasn’t a place for Comair.

The Future of the Hub
But with the airline so closely tied to Cincinnati, there was a lot of concern that this shutdown also meant further cuts for Cincinnati. Delta was very careful to say that’s not the case. Sort of. The airline said “No reductions in the number of Delta flights are planned at Cincinnati as a result of this decision.” Note those last six words.

It’s very true that the decision to shut down Comair won’t impact Cincinnati. But the new pilot contract which greatly reduces the number of 50-seaters will hurt Cincinnati. I look at a market like Cincinnati to Greenville/Spartanburg. There’s one flight a day on a CRJ right now. The chance of that going to a bigger airplane is not good. And the chance that Delta will want to allocate one of its very few 50-seat jets to that route is also slim.

There will be changes in Cincinnati, but it won’t be because Comair shut down. It will be because the airline is remaking its fleet of sub-110 seat airplanes and will have to make some real changes in its network.

Delta does note that Cincinnati is currently profitable and will “continue to be an important market.” It doesn’t say anything about continuing to be a hub, but of course, it will remain an important market at the very least, but I do wonder what Cincinnati will look like in 2015 when the fleet transition is done.

What does get lost in all of this shuffling is that a lot of good people lost their jobs with Comair’s shutdown. May they all find new work soon.

Virgin America Announces Elite Rewards Program – Fodor’s
Here are some details on Virgin America’s new elite program for frequent fliers.

Where Do Old Airplanes Go? – Conde Nast Daily Traveler
A fun piece on what happens when airplanes are no longer wanted.

I’m not sure if you saw it, but Southwest said that it is actually going to pay the convert the 717s into Delta’s configuration so that the airplanes are ready to go. They’ll also do maintenance work to deliver them like brand-spanking new airplanes. Delta got a fantastic deal, and Southwest looks like it was pretty desperate to get rid of them. Is this the right move for Southwest at such a high cost?

In case you missed it, JetBlue and Virgin America both announced earlier this week that they would be rolling out elite programs for their frequent fliers. What are the chances of that happening on the same day? Pretty good, actually, because they were announced at the start of the Global Business Travel Association (GBTA) conference which is an enormous event for corporate travel. These moves shouldn’t be a surprise since most low cost carriers have been moving toward courting the business traveler for some time.

Both airlines have been making a big push for a bigger slice of that oh-so-tasty business travel market because that’s where the money is. (This is music to Spirit’s and Allegiant’s ears because it just gives them more room to serve the leisure traveler.) As JetBlue has started to develop more utility for business travelers in Boston and New York, it naturally wants a bigger piece of that market. (You think those 10 daily Boston – Washington/National flights are for leisure travelers?) And Virgin America knows it needs more revenue if it has any hope of making a profit.

So what is it that business travelers want? They want a great schedule and they want free upgrades. Hmm, well this move isn’t going to give them any of that. But it will make the travel experience more pleasant, and it provides recognition for those who do spend a lot with the airline.

Big Money to Get In
The key here is “spend” … and spend a lot. While most traditional legacy airline elite status programs are based on miles flown (with some element of spend), these are almost purely spend-based. For Virgin America, it is 5 points per dollar spent and you need 20,000 points for basic Silver elite (it’s 50,000 for gold). That’s a lot of dough to spend just to earn elite status. At $250 each way, that means 16 flights between JFK and SFO are needed to earn elite status as compared to 10 on a legacy airline.

JetBlue will give you Mosaic elite status (the only level it offers) when you hit 15,000 points (or 30 total flights and 12,000 points). But for JetBlue, you get 3 points per dollar. That means 20 flights will get you elite status on that route at $250 each way, double what it would take if you flew a legacy airline.

So it can be pretty hard to qualify, though this might be an extreme example. Shorter flights tend to have a higher spend per mile so the gap shrinks. In LA to SF, for example, if you have a $150 fare, you need 27 flights on Virgin America, 30 on JetBlue, and 30 on United for base level elite status. But JetBlue and Virgin America tend to skew toward longer flights anyway.

What do you get?
But are the benefits worth it to dedicate your flying to one of these airlines? I guess it depends on who you are. Most of the benefits are pretty standard for elite status. You get free checked bags (well, more than the 1 you already get for free on JetBlue). You also get priority boarding and security (plus priority check in for Virgin America). You’ll also get dedicated customer service contact lines. Virgin America has gone a little further with dedicated live chat and email as well. You’ll also get the obligatory bonus points to earn on travel, but you won’t get upgrades.

No upgrades?!?! I know a lot of you are having heart palpitations. But this is smart because the airlines don’t need to dilute the value of their premium offerings like legacy airlines have.

Of course, JetBlue can’t upgrade you very far anyway since it only has extra legroom seating and no first class. People who earn status this year get 6 free upgrades to those extra legroom seats, but that’s a one time deal. After that, the only upgrade benefit is that you can use points to upgrade instead of just dollars like everyone else.

For Virgin America, the stakes are higher but upgrades are still very limited. There is a twist in that the airline is now dedicating seats toward the front of the cabin as premium seats. They’re no different than anywhere else on the airplane but only elite members can sit there for free until the day of check in. Other have to pay for “Main Cabin Express.” On the day of check in, elites can sit in the Main Cabin Select exit row and bulkhead seats without charge. But to upgrade to First Class, there is no deal. The only thing elites get is an expanded window to pay for the upgrade, so they have first crack.

Virgin America’s two tier system is more complex than JetBlue’s very simple offering. With Virgin America, elite members will also get some goodies like discount coupons for future flights, waived fees, and special partner deals as well. But the result in the same.

Rationale
In the end, both of these require more spend for fewer benefits than with elite programs at legacy airlines. And you know what? That seems smart. These guys both have better onboard products domestically anyway, so they should be trying to get a premium. For those who like to spend as little as possible and get a lot for free, this isn’t going to be that attractive. But no airline should really care about those people anyway.

The point is to cater to road warriors. They’re going to be traveling anyway and paying a fair bit for it. For them, the most important thing is to reduce the hassle. Adding dedicated customer service, front-of-the-line passes, and more liberal policies might just reduce the hassle enough to make it worth shifting business where it might not make sense today. At least, that has to be the hope. Otherwise, these airlines are just throwing away benefits and adding complexity for nothing.