Last Friday I received an invitation from American to an event that would show off the “company’s aircraft modernization plans while onboard an American wide-body jet.” Sounded good, but that event was yesterday and with less than a week’s notice, I couldn’t make time. I was, of course, eagerly awaiting the news. In the end, it wasn’t quite the announcement I would have hoped. The news is good for business class (eventually), but mixed at best (that’s being generous) for coach.

It’s very strange that they brought everyone to Dallas for this event, because while they did hold it on a widebody, it was on an airplane that didn’t have the new product onboard. Why? Because the work to upgrade the seats on the fleet won’t even begin until 2014. Why bother to announce something that’s two years away from even starting? Seems like a show for the bankrupcty court to me. I found it highly amusing that the same day, US Airways put out a release announcing it was done putting flat beds on its A330s. American still hasn’t started.

For the 10 new 777-300ERs being delivered starting this year, there isn’t much news over what has already been leaked out by the airline over the last few months. One thing that still hasn’t been cleared up is whether American will be doing 9 or 10-abreast on the 777s. There were conflicting reports from the event, but looking at the seat counts, it looks like the airline is going with the tighter 3-4-3, 10-abreast configuration on all 777s in coach. But let’s forget about the 777-300ER and instead look at the existing fleet, which was what yesterday’s announcement was really about.

Boeing 777-200 – 47 in the fleet
The current flagship aircraft will be undergoing a fairly dramatic makeover. It looks like it will get the same seats as on the 777-300ER throughout with one big difference. All 47 airplanes will lose First Class and become two-cabin. Hmm, maybe they’ll just take the First Class seats on these planes and plop them on to the 777-300ERs. This means that the only airplanes with true international First Class in the entire American fleet will be those 10 lonely 777-300ERs. That’s a big change for the 47 airplanes that have it today.

Let’s do a little math. The 777-200s today have 16 seats in First and 37 in Business. Those 53 seats will be replaced with “up to” 45 of the new Business Class seats. I would imagine that would take up about same or even a little more floor space even with fewer seats. But the more interesting math is in the back of the bus, where it goes from 190 coach seats to “up to” 45 Main Cabin Extra and “up to” 170 coach seats. I don’t see how that’s in any way possible to net 25 more coach seats unless the airline adds an extra seat in each row. This has to be 10-abreast in a 3-4-3 configuration, unless they’re using “up to” to mean they might back down. But with Main Cabin Extra, American’s version of Economy Plus, at 45 seats, it seems that cabin will be 5 rows of 9-abreast seating no matter what.

If you can sit up there, you’re in much better shape, but it might be tough. American elites and elites on partner airlines will be able to sit there for free, so that’s going to mean a lot of demand. It’s even more pronounced on the 767 as I mention below.

If you do end up in the back, American hopes to make you forget about that by having a bunch of audio/video on demand programming and internet access, just like on the 777-300ER.

Boeing 767-300
The workhorse of the fleet is getting a makeover as well, um, sort of. Well, ok, some the fleet is eventually getting a makeover beginning in a couple years.

There are 58 767-300s in the fleet today and “up to half” will be fixed up and made to look pretty. There will be a flat bed in business with direct aisle access, but I assume it’s not the same seat that will be on the 777s. That seat just doesn’t fit very well into a cabin the width of a 767, so the airline will have to use something else. While this is just my assumption, it seems to be confirmed by the fact that unlike on the 777s, inflight entertainment won’t be in the seat. That’s right; American will continue to distribute tablets for business class travelers as is done today.

In coach, it doesn’t look like things are changing much at all. Today, the 767s have overhead monitors, and I’ve confirmed with American that’s not changing. That’s just weak.

The only change appears to be the addition of a very tiny section of Main Cabin Extra seating on this airplane. By tiny, I mean a mere 14 seats in two rows. Compare this to United which puts more than 50 seats in Economy Plus and Delta with 30 to 40 in Economy Comfort on the same aircraft type and this is not very competitive for all those elites looking for relief.

Why would American do that? Probably because it’s easy. The new 767 configuration will have 167 seats in coach, the same number that currently sit behind the overwing galley and lavs. There are four rows of coach in front of that galley which will apparently become two rows of Main Cabin Extra (and will likely lose some space thanks to the new biz configuration). So it will be very nice up there if you can find a way to get a seat. Competition is going to be very tough to get one of those and there are going to be some seriously unhappy elites.

The way I look at this is that American is doing the bare minimum it can get away with on the 767 until it retires those airplanes. The problem is that apparently the first won’t be retired until “2015(ish)”. Who knows how long it will take for there to be no airplanes left with the old seats. It could be years and years.

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None of the timing issues of this whole thing will stop American from crowing about how it will offer direct aisle access to every one in business class. I counted NINE mentions of direct aisle access in the press release. Why the heck is it focusing so much on that? Because it’s pretty much the only thing that differentiates American from United in a good way. Delta has long been working toward its plan to have direct aisle access for all business class seats, and it will get there way before American. But United continues to have all window seats blocked from the aisle by another seat. And on pre-merger United 777s, there are also two middle seats in each row that don’t touch the aisle. So this is American’s effort to show that it’s better than United.

I’m really mixed on this announcement. In Business Class, it’s a very clear improvement. But coach travelers are really getting the raw end of the deal, despite American’s effort to de-emphasize the bad news. Yes, on the 777, coach passengers get better in-seat entertainment, but they also get narrower seats with one more per row. On the 767 in coach, it seems to me that nothing changes at all. The 767s won’t even get wifi. Main Cabin Extra is nice, but on the 767 there are so few seats that I bet it makes people more angry than not because they can’t get it.

In other words, this looks like the airline has put together a nice show for the court to make it look like it’s really making big changes, but there are some real negatives here. Even forgetting about those issues, the retrofit doesn’t begin for two more years, so this announcement is quite premature from a traveler standpoint.

For those who like to continue to point out that a US Airways bid for American in bankruptcy will fail just like the bid for Delta in bankruptcy failed, Friday’s news that the airline had won backing from the American labor unions should finally prove that this is a very different animal. US Airways now has the inside track to taking over American. I’d say the chances of American coming out of bankruptcy independently are now pretty slim.

Remember, with Delta, US Airways didn’t try to get labor’s buy-in but it would have had trouble anyway. The US Airways plan then was to shrink the combined airlines, and that doesn’t sit well with labor. Meanwhile, Delta was able to rally its workforce and a huge groundswell of support to “Keep Delta My Delta” sprung up. That couldn’t be further from what’s happening at American.

US Airways doesn’t want to shrink, but more important than that, at American, labor hasn’t respected management for a decade. Sure, there’s a new CEO in town but Tom Horton is still part of the same regime. His announced plans for labor involved so many cuts to wages and jobs, that it wasn’t hard for US Airways to come in with a better plan.

Revenue Growth, Not Just Cost Cuts
See, the current management team at American blames nearly all of its problems on its costs. Sure, that’s an issue, but Doug Parker, Scott Kirby, and the rest of the US Airways team know that there’s a big revenue problem as well. Fix that, and you don’t need to slash labor to the same extent. That’s music to the unions’ ears.

The terms that American unions have agreed to will keep 6,200 jobs that would be furloughed under the American plan. While we don’t know details of where these jobs will come from, this plan should be a no-brainer for mechanics and those in the airports because they stood to lose the most under the current management team’s plan. But what’s really telling about the potential here is that the pilots and flight attendants have jumped on board.

American’s misguided plan is to flood the market with a 20 percent capacity increase over the next few years. Though incredibly misguided, that would mean more jobs for pilots and flight attendants. So even with that carrot being dangled, they’re supporting the US Airways plan. Why?

The pilots have been very vocal about it. In a memo, the message was blunt. “The APA leadership does not believe that AMR’s business plan will produce an airline that is viable long term.” In other words, they agree with US Airways and most airline analysts that they need some heft to compete with Delta and United. And they need that heft without organic growth since there’s no need for more capacity in the market. US Airways offers that opportunity plus the promise of a very smart management team that can make American competitive again.

A Better Team with a Better Network
The real issue here is that labor has no faith in American’s management team. They don’t believe that the business plan will work (read what the flight attendants say), and they have good reason to feel that way. They also don’t trust their management team and haven’t for years. In the pilots’ memo, it was pointed out that American has engaged the same attorney the much-hated Frank Lorenzo used with Continental/Eastern. Things like that do not help build trust. Neither does a Section 1113 proposal that will result in dramatic cuts.

More importantly, the US Airways efforts have started to help build trust with that management team. Some have worried that a combined US Airways/American would look like US Airways. It won’t. It will be American but better-run. The airline will remain American Airlines and will be headquartered right where it is today. There will just be a better team in place to run a better network.

Keep in mind, this is just an agreement with the unions IF an acquisition happens. That means there’s a lot of work to do, but this is a huge first step that might seal the deal. Why do I say that? Look at the creditors committee.

Swaying the Creditors
The unions hold 3 of the 9 seats on the creditors committee, and clearly they support this move. Boeing sits on the committee as well. With US Airways affirming the orders on the books, Boeing should be happy since it hasn’t sold an airplane to US Airways in years. This creates more opportunity.

The Pension Benefit Guarantee Corporation (PBGC) is also a member. It has been downright angry about American’s plans for its pensions, so you would think that US Airways would present a better option. And then there’s Hewlett-Packard. American has been working with HP on a new reservations system but nothing has come of it yet. US Airways, however, uses SHARES, a system that HP owns. You think HP will be onboard? Oh yeah.

That’s plenty of votes right there. If you have the creditors committee behind you, that’s huge. Of course, we haven’t seen what US Airways will offer yet, but you know that if it couldn’t offer something compelling, it wouldn’t be putting so much effort into this.

Can it Be Stopped?
What can American’s current management team do to stop this? Well, they continue through the process on breaking union agreements in bankruptcy (Section 1113). Could this move by US Airways make American reevaluate its proposal to try and keep labor? Probably, but labor is lost. A new proposal now will be seen as hollow. I don’t think American can get labor back, but really it doesn’t even want to try. The airline circulated some talking points that included this:

We believe statements of non-binding support from union leaders for alternative proposals are no coincidence given the timing of the 1113 process.

Right, it’s all just a negotiating ploy. Keep thinking that, American, and you’ll watch your airline slip away.

I’m sure there are still ways that American can try to maneuver, but so far it doesn’t seem to be trying very hard. It appears to be playing the “stay the course” game with a reminder that it has the exclusive right to reorganize until September 28. What it fails to mention, as has been reported by Holly Hegeman over at PlaneBusiness, is that the while American has the exclusive right, it’s not true exclusivity. The creditors can ask the court to end the exclusivity early if there’s another real option.

What About US Airways Unions?
Yet another common objection to this merger is the tired line that US Airways can’t get its own house in order, so how could it handle American? Very well, actually. The US Airways unions are being cautious, but they should be happy. US Airways has been clear that it needs to keep wages lower because it can’t produce as much revenue as the big three from it existing network. With American, that changes and raises will become possible.

Now, that might not please the pilots union USAPA since that group has acted against its own interests from the start, but that’s too bad. American’s pilots outnumber USAPA members handily. USAPA will disappear in a merger and then hopefully there will be a rational union leadership that will best represent its members on both sides. If the legacy American pilots can come to an agreement with US Airways so quickly, then the US Airways pilots would probably be insane not to take that same contract.

In the end, US Airways is making all the right moves right now. It has now become far more likely that we’ll see a combination of the two airlines.

[Original photo via Flickr user numberstumper/CC BY-SA 2.0]

I came across a really interesting research note on American last week that I thought was worth discussing here. Jamie Baker at JP Morgan put out a note entitled “AMR v6.0: Additional Thoughts on Consolidation.” There’s been a lot of talk about how American is focusing on its cornerstone markets, but Jamie points out that it’s really everywhere beyond those cornerstones where the problem lies. With this view, a merger is the only real path to compete.

Jamie sees American’s revenue problems as a “decade-long marginalization of its domestic market.” What’s particularly interesting about this is that it has nothing to do with the local markets in the cornerstone plan, where American is trying to strengthen itself in its five key markets of LA, Dallas/Ft Worth, Chicago, Miami, and New York. Instead, it actually shows how the cornerstone plan is insufficient in serving the rest of the US. The idea is that with consolidation, Delta and United can now service non-hubs much better than American simply because of all the possible connecting choices going every direction.

Over the last couple of years, American has lost ground with its unit revenue when compared to competitors. Part of this, Jamie blames on American’s less the competitive schedule in non-hubs. Using a list of “small to moderate East Coast cities,” Jamie shows how inadequate American can be. Jamie used Buffalo in his example, probably because of the stark contrast in that market, but I’ll even go off the list. Let’s look at Knoxville, Tennessee. Here’s how service breaks down.

As you can see, thanks to consolidation, both Delta and United have ample service to get people anywhere in the US and into the global network. American? Not so much. For travelers heading west or north, there’s Chicago and Dallas. But what about those who want to go to the northeast? Nothing. Europe? You’ll backtrack through Chicago or Dallas and its more limited options. Plus, that longer journey time will make the options appear lower in reservation systems. What about intra-South? Nada. Even American’s Latin America stronghold loses out. American is pulling its single daily Knoxville to Miami service this April.

While there are a lot of cities you can pick that show the same exact thing, I picked Knoxville for two reasons. One, it wasn’t even on the JP Morgan list so it shows how easy it is to find these opportunities. Two, it’s the aircraft used that make this very telling.

American likes to blame all its problems on not having scope clause relief. It needs to outsource 60-90 seat airplanes so it can compete with the ones that Delta and United have, right? Well, Knoxville is mostly full of fifty seaters. In fact, every single United flight in there is on a fifty seat airplane which American could use if it so chose today. Delta has three CRJ-900s and 1 DC-9 in there, but everything else is on a fifty seater.

Maybe American want to argue that it needs enough larger aircraft capacity elsewhere in order to generate the connections to even be able to fill more fifty seaters on this route. I’m not sure I buy it, but let’s say that’s true. Then what?

American can add seats to Dallas and Chicago if it wants, but that doesn’t solve the problem. Sure, a Miami flight could come back, but I don’t think that Miami is where American really wants to see much in the way of larger regionals. The Latin market primarily needs larger airplanes that American operates today. If American wants to add more domestic flights from Miami on larger regionals, it could, but that’s still not a good connecting point for intra-South traffic. (And those ever-rising Miami airport costs will put serious pressure on those flights anyway.) Lastly, there’s New York. There aren’t really slots to be had in New York, so even if American wanted to connect that up, it couldn’t without either making it go at a bad time or giving up another flight.

How can American fix it? Well, merging is one answer. There has been talk of both Delta and US Airways as dance partners. Let’s focus on US Airways since I’ve heard so many people suggest that the route networks don’t really match up. US Airways gives American Philadelphia, and that is a good jumping off point to other cities in the northeast as well as to cities in Europe. Looking for intra-South connections? Charlotte will do the trick. In fact, Charlotte is so close that it can act like Atlanta. It’s a good hub to connect just about anywhere. That not only makes American competitive, but it probably leapfrogs it ahead of United in Knoxville.

That is just one example of the potential power of a merger. It makes American much more relevant for people in cities on both sides of the US. As Jamie notes, American is still strong in the Midwest. With Dallas/Ft Worth at the bottom and Chicago/O’Hare up top, that’s no surprise. But it’s the east and west where American lacks enough presence. Anyone remember the codename of the US Airways/America West merger? Project Barbell. That’s because it was strong on the coasts but not in the middle . . . . Sounds like a good fit to me.

When it first started talking about the interiors of its new 777-300ER aircraft, American said it would have a premium economy section. I secretly hoped that it would be the first true premium economy cabin in the US, but we later learned that it would be a coach section with more legroom just like Delta’s and United’s. Now, we have more details on the product, and there’s really nothing too exciting and different here. It’s all rather expected.

American will introduce Main Cabin Extra this year, and it will be basically be the same thing as United’s Economy Plus and Delta’s Economy Comfort. The seats will simply be coach seats with four to six inches more legroom. So is this news? Well, sort of. I mean, it’s news that American is doing it, but there’s nothing really new here.

This doesn’t mean it’s a carbon copy of the United and Delta programs. There are a few subtle differences.

The onboard product is really just more legroom on all three airlines. In a way, I’m glad to see that American is finally deciding to join the ranks of the other legacy carriers in the US with a premium economy section, but on the other hand, I’m kind of bummed they didn’t try to do something more. International airlines have worked hard to create a true premium economy cabin – different seats, meals, etc. No US-based airline has done that, and I had hoped that American might leap ahead of the rest. It didn’t.

It is kind of funny to think about this. American was ahead of the curve when it rolled out More Room Throughout Coach many years ago. In that plan, everyone got extra legroom. United opted for Economy Plus where it was just a small cabin, and that turned out to be the right way to go. American led with a bold plan that was ultimately a failure because you’ll never get everyone onboard to pay more for extra legroom. But at least it led. Now, it’s the last of the big three to add this offering and it’s not leading in any way.

I shouldn’t get down on American for this. It’s better to have this type of cabin than nothing at all, and it does give American the ability to sell this type of offering on its flights while British Airways sells a true premium economy product. But I can’t help it. American keeps talking about how it’s going to really invest in its product and do something amazing when really it’s just continuing to play catch-up.

For those who are looking forward to taking advantage of these seats, you’ll have to wait awhile in most cases. The 777-300ERs will have the extra legroom section upon delivery. New aircraft deliveries of 737s starting this fall will also have it, but the rest of the fleet will take a long 18 months before it’s outfitted. No other timeline was given regarding when certain fleets would be done, but hopefully more info will be shared eventually.

Have you been through Miami lately? Unless you’re an American Airlines-loyalist, the answer is probably a firm “no.” While American’s presence continues to strengthen, other airlines are running away in droves. The latest is Delta, which dropped its last attempt to make non-hub flying there work this week. Why is this happening? It’s actually a very clear lesson on how not to run an airport.

Miami is a vibrant city with a great local Latin population. That local presence combined with its location should make Miami a fantastic place for a Latin American hub. Sure enough, it is. It’s one of American’s jewels in an ever-rusting crown. By all accounts, it’s a rock star of an operation for the airline.

That makes sense, because soon enough, American and its oneworld partners might be the only ones left. Here’s a list of airlines that have left or cut back recently.

• Air Jamaica cut its recently re-launched route to Kingston (but it still does Ft Lauderdale)
• AirTran pulled all flights after the merger with Southwest
• Alaska recently decided to switch its flights to Ft Lauderdale
• Delta killed flights to Cincinnati, London, Memphis, Orlando, Raleigh/Durham, and Tampa
• KLM canceled summer service to Amsterdam and winter service for next year is up in the air

So what’s left? A lot of silver birds. While Delta pulled out of many cities, it’s not like other US airlines are stepping in to fill the void. Pre-merger United doesn’t fly there much – there’s only one flight a day from Denver and three a piece from Chicago and Washington, many on regional jets. US Airways flies to Charlotte and Philly but it doesn’t even bother with its Phoenix hub. It can be downright difficult to find good flights to Miami if you’re traveling domestically . . . unless you fly American.

From Europe, there will continue to be some service, but it’s highly seasonal (winter, of course) and leisure-based. Nearly every Latin airline has to continue to fly there because that’s the bread and butter route, but we’re increasingly seeing even Latin carriers look elsewhere. TAM now flies double daily flights to Orlando in addition to its Miami service. But it’s not Orlando that’s the real threat. It’s Ft Lauderdale.

Ft Lauderdale has seen a tremendous increase in service over the last decade, much of it from low cost carriers. Sitting only 25 miles north of downtown Miami, Ft Lauderdale is not that far, especially considering how much of the population lives north of Miami itself.

Spirit makes its home in Ft Lauderdale with low cost flights all over the US and the Caribbean. JetBlue has grown its operation there over the last few years, and the new Southwest/AirTran combo will have a significant presence. Allegiant bases airplanes there while airlines like Alaska have moved service over from Miami. And despite its stated desire to fly into primary airports, Virgin America picked Ft Lauderdale over Miami. What gives?

You can probably blame it on two things. One is American. American is a tough competitor, and it fights ferociously if anyone invades its turf. But that doesn’t explain everything. The one that really grabbed me was Alaska’s decision to leave. Alaska and American are long time partners and American even puts it code on the Alaska flight. So something else is happening here to push airlines away.

That “something else” is Miami’s out-of-control spending. The airport is on a building spree putting together incredibly expensive, long-delayed terminals that are causing costs to simply skyrocket. In 2010, the airlines paid roughly $17.61 for each passenger boarded. In the next decade, that will balloon to over $30. Think about that. How can a low cost carrier survive in an environment like that? It can’t. And Alaska, despite not being a low cost carrier, apparently feels the same way. Everyone should. The crushingly high costs are simply too much to overcome, even with a partnership with American.

Of course, high costs alone wouldn’t cause the exodus. But high costs combined with a convenient alternative? Ah yes, that’s enough to make waves. It’s very easy for airlines to walk away from Miami and its money-wasting ways because Ft Lauderdale is so close. By comparison, Ft Lauderdale is downright cheap. In 2010, its cost per enplanement was a measly $5.32. You can imagine why low cost carriers have flocked there. That airport itself is going to see costs rise as it works to build a new runway for almost $800m (just broke ground), but even if costs tripled, it would be half of Miami.

Of course, if costs triple, Spirit and Allegiant might find themselves running away, so hopefully Ft Lauderdale is able to keep its spending down and its charges low. If the trend continues, we might just find Miami renaming itself to Miami oneworld International Airport.