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Ah, There It Is – Northwest Responds to Frontier

February 19, 2007 CF 1 comment

I knew it would only be a matter of time.

Today, Northwest announced their response to Frontier’s decision to bring flights to Memphis. First, they beefed up service on the routes that Frontier announced and then they threw a little bit of fun in there as well.

On the Las Vegas route, they added a second daily flight (Frontier will have one). In Orlando, they added a fourth daily flight (Frontier will have one). Lastly, on the Denver route, they’re upgrading all three daily flights from 50 seat CRJs to much larger A319s and A320s. Frontier will only have two flights on this route.

Northwest also added a daily Indianapolis to Denver flight which is clearly a smack back at Frontier. Since Northwest has a mini-hub at Indianapolis, this flight was probably the most rational of all possible Denver flights. And then just for fun, they added a second daily flight from Memphis to Seattle. I’m not quite sure what that one is about. It could be due to aircraft routing, I suppose.

Either way, the fun is just beginning in this fight.

Frontier, Northwest, Schedule Changes none

Frontier Heads to Memphis, Waits for “Northwest Welcome”

February 15, 2007 CF No comments

These guys at Frontier are just gluttons for punishment. Yesterday, the airline asked Memphis to “be their Valentine” by announcing flights to the city from Memphis, Orlando, and Las Vegas. What they really should have done is gotten on their knees and begged Northwest to not lay the smack down.

As you probably know, Memphis is the smallest hub for Northwest Airlines, but Northwest still protects it fiercely. While low cost carriers have flourished in other cities, Northwest hubs have been barren wastelands. Memphis is a great example. It’s a good-sized city that could support low cost flights, but AirTran is the only one that flies there (unless you count US Airways). AirTran only has six daily flights to Atlanta. That’s the extent of low cost carrier competition in Memphis.

How does this happen? Well, Northwest always gives a giant “Northwest Welcome” to any new carrier in its hubs. You’d think Frontier would know this, because last time they entered a Northwest market they got the beat down.

On December 18, 2003, Frontier announced two daily nonstop flights between Minneapolis and Los Angeles beginning April 11. Within a couple of hours, Northwest had already put out a press release announcing two additional daily flights between Minneapolis and Los Angeles as well as two daily flights between Frontier’s home in Denver and Los Angeles. Of course, they matched all fares as well. As you can imagine, that didn’t last very long for Frontier.

So why are they trying this in Memphis now? I have no idea. It’s possible they’re just getting more aggressive in trying to develop flying that doesn’t depend on the Denver hub. It’s becoming increasingly important for them to prove they can do that, and this might be their best option right now. No matter what, you can be sure that Northwest is planning a big ole’ welcome party, so keep your eyes open.

If that’s not enough, AirTran is also not happy about this. They’ve decided to start nonstops between Memphis and Orlando as well. Giddyup!

AirTran, Frontier, Northwest, Schedule Changes none

Hot Alliance Action

February 2, 2007 CF 1 comment

Today was a big day for new additions to global alliances. To be fair, these are just the announcements of additions but in the near future oneworld and SkyTeam fliers will have more options for mileage earning and redemption.

First up, SkyTeam. Air Europa, Copa Airlines, and Kenya Airways all signed up as associate members. Air Europa is based in Spain and flies to sun spots around the world so that frozen Europeans can warm up. Copa, formerly partially owned by SkyTeam member Continental, connects North and South America through its hub in Panama. Kenya Airways is probably the most exciting addition because it opens up an entire new continenta. From its Nairobi home in East Africa, the airline flies to Europe, Asia, West Africa, and Southern Africa.

Now, I’m not exaclty sure it was it means to be an associate member, but it probably means they have to get coffee and pick up dry cleaning for the primary members. I imagine the rules for joining as an associate are less strict so it’s easier to join. In the end though, they will have earn/burn ability for frequent flier miles, codesharing, and lounge sharing so the customer will benefit.

SkyTeam’s US members are Northwest, Continental, and Delta, at least until some merger happens and changes everything around.

Next up is oneworld. They said yesterday that as of April 1, Malev, Royal Jordanian, Japan Airlines (JAL), and all its affiliates will join the group. Also that day, Aer Lingus will leave the alliance and go it alone saying that everything is just fine, they’re at the controls, flying the plane, free to pursue a life of religious fulfillment.

Malev is based in Budapest (Hungary), Royal Jordanian in Amman (Jordan, duh), and JAL in Tokyo. They all fly to destinations on several continents. American is the US airline in this alliance.

Hong Kong’s Dragonair, along with LAN Ecuador and LAN Argentina will join sometime later this year as well marking a pretty strong expansion by the alliance.

Aer Lingus, Air Europa, American, COPA, Continental, Delta, JAL, Malev, Northwest, Oneworld, Royal Jordanian, SkyTeam none

Go On Delta, Take the Money and Merge

January 10, 2007 CF 3 comments

I don’t know about you, but all this merger talk and no action is starting to make my eyes glaze over. I want action!

We had a couple of pieces of news today that I thought it would be worthwhile to discuss. First, US Airways decided to sweeten the pot and increase their offer by oh, a couple billion dollars.

The previous US Airways offer was for $4 billion in cash and 78.5 million shares of stock in the new company. At the time, that was valued at $8 billion but as the US Airways stock price rose, it came up to about $8.5 billion. The new offer adds another $1 billion in cash and 11 million more shares of stock. This brings the current offer market value up to $10.2 billion. Oh, and now the offer expires on February 1, so they’re trying to get things moving here.

Previously, US Airways said they felt the original bid was more than fair. They said that Delta’s valuation was overinflated and they weren’t going to budge on the numbers. So why the change in heart? Well, clearly they found a good reason to bump it up, and I’m guessing it’s from informal creditor discussions. The creditors may have been on the fence before, but this has to push them over.

Meanwhile, Delta’s response to the proposal was that it “does not address significant concerns that have been raised about the initial US Airways proposal and, in fact, would increase the debt burden of the combined company by yet another $1 billion.” That doesn’t really say very much to persuade me that they have a strong argument here.

More important is the response from the creditors that came out tonight. This one “calls on the company to provide thoughtful and unbiased consideration to US Airways’ enhanced offer.” Sounds fair to me. What exactly do they want?

Well among other things, they want US Airways to be allowed to perform due diligence, they want Delta management to postpone a Disclosure Statement scheduled for February 7 so they can evaluate the offer, and, interestingly they want the company to “Desist from taking actions intended to deter other companies from proposing transactions with Delta that may result in greater creditor recoveries than under a stand-alone Chapter 11 plan.”

Now I’m not sure what Delta has been doing to deter other companies, but that’s a fairly strongly worded accusation there. One thing that might be bugging the creditors is this other tidbit of news that came out today saying that Delta and Northwest have been talking merger.

Wait, Delta said they wanted to come out as a strong independent carrier when US Airways made an offer, but secretly they’ve been talking to Northwest about a merger as well? That doesn’t make sense. Oh wait, yes it does. I think they see the writing on the wall.

If Delta thinks there’s a good chance that the US Airways bid will be accepted, then they must be scrambling for another alternative more to their liking. Why is this alternative better? Well, they could be the surviving management team theoretically. That would certainly be more interesting to them. Why else?

If you read this article, you’ll see that they are discussing a possible combination AFTER they exit bankruptcy. Remember the United bankruptcy? Remember how much money the management team made when they emerged? I would assume that the Delta management team stands to benefit as well as long as they bring the company out of bankruptcy. They would be able to do that if a merger occurred after exit.

A merger after exit also means a more uncertain future for the creditors. That means the creditors would have to accept Delta’s standalone plan and then hope the stock price would increase under a merger scenario after they come out. If Delta can convince the creditors that this is in their best interest, then it could become more attractive. There’s a lot more risk in that though. The creditors could also just take the $5 million from US Airways along with the stock and run.

Delta, Mergers/Finance, Northwest, US Airways none

Why United Won the Right for More China Flights

January 9, 2007 CF No comments

The long awaited decision about who would win this year’s rights to fly to China came down today. United was awarded the rights to fly daily between Washington/Dulles and Beijing beginning March 25. This is definitely the right move, in my opinion, and it should provide the greatest public good.

United put out the usual fluff press release about how excited they are and all that jazz, but the really interesting stuff is in the actual DOT order. Click here to read all 24 pages in PDF form. For those who don’t want to read that much, here’s a summary.

First a little backfill. As part of the last agreement between China and US, air travel would be gradually opened up to more capacity over the years. This year, there were 29 weekly flights up for award and they all had to be awarded to airlines that already fly between the US and China (no newbies allowed).

Fifteen of those flights were for all cargo service. Polar, Fedex, and UPS all asked for 4, so they all got what they wanted and there were 3 leftover. Seven of those flights were for cargo or combination (cargo and passenger) flights between the US and China Zone 2. That means anywhere in China except for Shanghai, Beijing, and Guangzhou. Unsurprisingly, nobody wanted those frequencies.

That left us with 7 weekly flights (once a day) between the US and China Zone 1 – Shanghai, Beijing, or Guangzhou – and that’s what was so hotly contested.

As I mentioned in this previous post, American wanted flights from Dallas/Ft Worth to Beijing, Northwest wanted Detroit to Shanghai, Continental wanted Newark to Shanghai, and United wanted Washington/Dulles to Beijing.

After American was unable to come to agreement with their pilots to fly such a long route, they tried to amend their application to have a stop in Chicago/O’Hare. In today’s order, the DOT said that American was too late to do that, and if the agency allowed it, it would delay the start of the service. So, American was booted out of the running.

Starting on page 16 of the DOT order, you can read the meat of the findings. The agency was working hard to inject “as much nonstop capacity into the US-China market as possible.” The following reasons are why United’s bid was chosen over the others:

Washington is the largest market in the US without any nonstop service to China (only SF, Chicago, and New York are bigger in overall demand)

United offers the most seats (347 seat 747-400s) in their bid. This is slightly more than Northwest but a whopping 22% more than Continental

Washington and Beijing, as country capitals, provide the best opportunity to improve convenience of travel for “government, academic, and industry representatives”

United’s flights would connect to many other destinations in the Mid-Atlantic and East. Other airlines had argued that United already serves most of those cities via its Chicago service, but the DOT found that considering how full the Chicago flights are today, there is still plenty of opportunity to serve more people in the region

United’s flights would also connect with partner Air China in Beijing to offer service beyond Beijing to 16 cities via a codeshare arrangement

As you can see, that’s a pretty strong argument. The DOT also acknowledged that other bids were good as well but just not as good as United’s. Northwest’s big downfall is that they currently serve all their China routes through their Tokyo hub. They could easily shift those flights to be nonstop from the US if they want but they have chosen not to. That certainly didn’t help their cause.

Continental’s bid appears to have lost because of the amount of service already flying between New York and China and the smaller size of the aircraft they would have used (777 vs. 747).

As I said before, I think they’ve made the right decision here. Congratulations to United on this victory. The order is still tentative as parties have 14 days to object, but I can’t imagine we’ll see anything that will hold up though.

Next up is another 7 weekly flights between the US and China Zone 1 beginning March 25, 2008. This time anyone can bid, even newbies, so it should get interesting.