Airline Roundup Friday 19 November 2010

VxA320b Air travel continues to boom, with industry analysts now projecting a combined multi-billion dollar profit this year for the US airlines (and billions more for the rest of the world's airlines too).  Business travel is particularly strong, with September showing a 12.1% boost in business travel compared to the same month last year, with particular growth in travel to the Middle East and Asia.  Economy class travel was also strongly up, at 9.3%, and all in all, traffic levels have now recovered to and gone past the levels prior to our recent (or should I say, 'present'?) recession.

Indeed, business is so great that startup airline Virgin America is finally able to report its first ever profitable quarter.  For sure, their $7.5 million profit in the third quarter isn't a great deal of money (and pales in comparison to Emirate's $925 million profit for the first half of its year) , but it is a profit nonetheless, and it is also much better than their $5.9 million loss for the same quarter in 2009.

Traffic was up 7%, while capacity grew at a slightly faster 10% rate.  However, this still meant their planes averaged a massive 84% full.  Providing another proof – if we need it – as to the way airfares are strongly rising, the 7% increase in passenger traffic was unevenly matched by a much greater 28% increase in revenue (coming to $202 million total for the quarter, making for a reasonably decent 3.7% profit margin).

Congratulations to Virgin America – let's hope this helps cement their viability in place, and let's hope they continue their growth further across the US and beyond (they now have service to Canada and will soon be adding service to Mexico, too).

American Airlines is distributing $8.8 million to its staff – not as a profit share, but rather as a reward for the company attaining its customer-satisfaction goals for the third quarter.  This makes seven quarters in a row the company has paid customer-satisfaction bonuses (even while making an overall loss – good on them for doing this), with employees getting up to $100 a month extra if the company meets or beats its customer-satisfaction and on-time performance goals.

AA has paid $30.0 million to its staff so far this year in such bonuses.

Talking about good airlines (What?  Good airlines – sometimes this phrase seems like an oxymoron) SkyTrax has announced its 2010 annual Best Airline awards.  The top five airlines for the 2009 – 2010 year, based on what SkyTrax claims is feedback from 17.9 million passengers (hmmmm) and measuring airlines in 38 different categories, are :

1.  Asiana Airlines
2.  Singapore Airlines
3.  Qatar Airways
4.  Cathay Pacific Airways
5.  Air New Zealand

I'll comment some more about CX next week as a result of my flights with them during the last few days, of course; for now suffice it to say that their staff, both on the ground and in the air, are almost impeccable in terms of friendliness and customer service orientation.

I guess safety is a difficult attribute to accurately measure.  If it was easier to judge, Qantas would surely have scored higher, but even so, it came at seventh place, with another of my favorite airlines, the amazingly profitable and still rapidly growing Emirates (are they destined to become the world's largest airline – and without needing to join or create any alliances), coming in at number 8.

It is interesting to see that no European or North American airline made it into the top ten list.

In the special 'Best North American Airline' category, top place went to Air Canada, and the 'Best Transatlantic Airline' was deemed to be Virgin Atlantic.

Why can't our airlines do any better?  All airlines fly the same planes, generally between the same airports, and with most other things the same.  The biggest point of differentiation seems to be customer service, and unfortunately 'equal opportunity' (and trade unions) seems to mean that these days employers in the US choose to (need to?) give equal opportunity to the rudest staff.

I know that airline employees will say 'we're only rude because you're rude to us' but three comments in response to that.  First, we are the customer, they are the customer service staff.  If we are rude, that is regrettable, but nonetheless we are the ones paying the money, and they are the ones being paid to be polite, not rude.

Second, politeness begets politeness.  I have to believe that the beautifully polite (or I could as equally say politely beautiful) staff on my Cathay flights find their politeness and courtesy results in politeness being received in turn from their passengers, while we all know how some US flight attendants can 'rub us up the wrong way' and leave us inwardly seething, and sometimes outwardly expressing that frustration too.

Third, politeness and friendliness are free.  They cost the airlines nothing.  In these cost conscious days, shouldn't the airlines be concentrating more, rather than less, on boosting friendly service – it might even make us feel slightly better about all the other things the airlines no longer give us.

Full details of the awards here.

The next article in today's newsletter talks about the implications of Qantas grounding its entire A380 fleet.  Here's a bit more background about what was actually an extremely serious event when the inboard port engine exploded.

Broken off pieces of the exploding engine pierced the wing in several places, breaking two of the control systems in the wing, disabling one of the two main hydraulic systems, and starting a fuel leak.

These failures meant the pilots couldn't dump enough fuel to bring the aircraft down to its maximum landing weight (it had taken off from Singapore very shortly before the engine explosion) and the fuel left in the airplane was unbalanced due to not being able to dump fuel from both wings and/or transfer fuel from one wing to the other.

Due to failed hydraulics, the left wing's flaps, slats and spoilers couldn't be fully deployed and the landing gear had to be lowered manually. Once the plane was on the ground, the anti-lock brakes didn't work and because only the inboard not outboard engines are used for reverse thrust, only the starboard inboard engine could be used for slowing the plane down.

The plane, which had to land at greater than normal speed, and which couldn't then brake hard, ended up taking almost the entire 13,123 ft of runway upon its return to Singapore.  The complete port wing may need to be replaced, and the plane will be out of commission for some months to come.

Rolls Royce believes that 40 of its new Trent 900 engines may have similar design flaws, and has agreed to replace the engines in their entirety.  Each engine sells for about $30 million – let me do the math, that represents $1.2 billion at full list price for the 40 replacement engines.  Ouch.  Perhaps someone should remind RR it is better to measure twice and cut once.

More to the point, RR doesn't have 40 spare engines lying around, and available for immediate delivery.  It has arranged with Airbus to take some engines that were intended to be fitted to new A380s due to be delivered to customers, creating more delay and disruption to Airbus' A380 delivery schedule, and I've no idea how long it will be before the last of the 40 engines finally gets delivered.

All in all, a massive major problem that narrowly avoided a disastrous crash of this huge 500 passenger mega-plane.

More to the point, it is the sort of thing that isn't supposed to happen these days, or so we are assured.  Ah – hubris……

Engineers proudly tell us that with all our advanced knowledge of metallurgy, computer modeling, and so on and so forth, machinery is more inherently reliable right from day one, and accordingly – so they argue, and, alas, persuasively to our regulators – there is less need for testing and less need for redundant/back up systems.  Accelerated development, test and approval programs are all the order of the day.

If this sounds familiar, it is what we've been told as justification for the general displacement of four engined planes by two engined planes, and the ever longer 'ETOPS' limits (or, more accurately, lack thereof) which certifies how far away from an airport a twin engined plane can be operated.  The maximum was once 60 minutes, and it has successively grown to 90 minutes, 120, 180 and 207 minutes.

Will ETOPS ratings continue to increase?  The question is rapidly becoming moot because these days there are very few parts of the world where airports are more than 414 minutes apart, and the FAA now allows qualifying airlines to operate twin engined planes almost anywhere in the world (apart from some parts around the Arctic, Antarctic and South Pacific).  Even the 'stricter' 180 minute rule covers 95% of the world.

Oh – and talking about the impeccable faultless reliability of the latest twin engined planes, not only has Boeing's new (and problem-plagued) 787 had its own share of Rolls Royce engine problems which is delaying the program, but one of the test planes suffered from a fire in its wiring during a flight last week that saw Boeing return its entire test fleet of 787s back to Everett, WA for further evaluation, with no further airtime allowed until the matter is resolved.

This may also delay the plane's FAA certification and first commercial delivery (currently scheduled for late Feb, 2011 – a date that has been delayed so many times already, but which is now starting to look awkwardly optimistic yet again).

Why am I reminded of the 'unsinkable' Titanic when I read claims about the invincibility of our latest 'state of the art' technology and associated knowledge/practice?

It will be several years before I stop being a reluctant and anxious passenger on 787s, and one of the most comforting parts of the Cathay Pacific flights to/from Hong Kong was being on a lovely old 747-400 – a totally tested airframe and four engine combination with happily no nasty surprises waiting to leap out somewhere in the middle of the Pacific Ocean.

Some more comments about airplanes.  I've regularly commented about the foot dragging approach being adopted by both Boeing and Airbus when it comes to replacing their most popular plane lines – the 737 and the A320.

The two companies are sort of replaying the bluffing game they played with their respective plans to develop a successor to the 747, with each company trying to dissuade the other from doing something, for fear of having to reciprocate and also do something.

In the case of the 747 successor, they went through all sorts of gyrations and even floated the idea for a while of jointly developing a successor.  Boeing was keen to do nothing as long as possible, because it had the only 747 sized plane in the market, causing it to get 100% of the business for large planes.  Eventually this onesidedness encouraged Airbus to commit to the A380 program, and after a further lengthy period of ambivalency, Boeing tried to cover its position by another upgrade to the old 747 (an attempt which has been significantly unsuccessful to date).

Now it is a very similar situation with the 737 and A320 (except for both companies having directly competing products at present).  Both companies want to keep selling these very profitable planes as long as possible before needing to commit billions to a successor, and both companies are fearful of upsetting the status quo, worrying that the other company might do a better job with its replacement than they could do themselves.

But the airlines – very cognizant of the fact that their workhorse planes are built on yesterday's technology and aren't nearly as efficient as a new state of the art successor design could be – are pushing both Airbus and Boeing to do something.

That is where it gets interesting.  In response, Airbus is talking about re-engining its A320, but Boeing can't easily reciprocate by re-engining its 737 series, because the 737 wings and engines are lower to the ground than the A320 wings.

Any new engine would likely have a larger diameter, pushing it closer to the ground – you'll recall that some 737 models already have a sort of oval/squashed shape for the engines to try and keep the ground clearance as much as possible.

So Airbus has seen this as a competitive advantage, and is promoting the concept of a re-engined A320 – something it can readily do but which Boeing can not do.  This approach would also save Airbus a huge amount of money, with most of the development cost going to engine manufacturers, not to Airbus.

Boeing has instead responded by saying that an engine makeover would be of trivial benefit, offering very little improvement in operating efficiency and economy.  That is undoubtedly true of its 737, but Airbus is gleefully touting the much greater benefits that would come from a re-engined A320.

On the other hand, Airbus has to be careful, or else it will force Boeing to accelerate its plans to replace the 737 with an entirely new plane, which would then see Airbus behind the curve, and needing in turn to play catch-up again.  This was disastrously the case when the 787 stole a lead on Airbus, who discovered too late that its current A330 was not nearly good enough to compete.

The A350 successor to the A330 and competitor to the 787 isn't due to market until sometime in 2013 – while this is only a little more than two years after the 787 eventually starts to operate commercially, there was originally much more than a two year gap between the two companies and their respective airplane programs, allowing Boeing to sell many hundreds of 787s with no viable Airbus competitor before Airbus came up with a credible A350 alternative to offer.

The situation is getting much more complicated, because the current two product market is threatening to become a three or four or even five product market.  There are possible Russian and Canadian new plane competitors, and there is also a much more definite seeming Chinese airplane, which was revealed in conceptual/model form at an airshow in China this week, with apparently 100 orders received so far.  Surprisingly perhaps, these 100 sales were not only to Chinese airlines but also to General Electric Leasing (GECAS) – presumably due to GE's plans to provide engines for the new plane.

This new Chinese plane, the C919, is projected to seat 166 passengers, to make its first flight in 2014, and to start commercial service in 2016.  Details here.

In comparison, a re-engined A320 could appear as soon as 2015, but an entirely new 737 or A320 replacement is unlikely to appear any time prior to 2020 at the earliest (assuming Airbus/Boeing were to start developing such a plane now).

It is very hard to know just how good the Chinese plane might be, but even if it 'only' sells to the semi-captive Chinese aviation market, it could represent the loss of thousands of airplane sales, and if it proves to be good, then there would be a many-year window during which time neither Airbus nor Boeing had a product able to compete with the Chinese plane.  Details here.

As I've said before, Airbus and Boeing need to abandon their myopic view of the marketplace and to recognize the evolution of new potentially substantial competitors.  The next major competing airplane model is as likely to come from a completely different source as it is from one or the other of the two traditional manufacturers, and to appear on an unsynchronized basis that may completely disrupt the current two supplier market.

Naughty airlines.  The EU has fined eleven airlines a total of $1.11 billion, finding them guilty of a conspiracy to coordinate their surcharges for security and fuel, during the period 1999 – 2006 (hmmmm – are we to believe this stopped in 2006?).

The largest fine went against Air France/KLM (€340 million – about $450 million).  Next came BA with a €104 million fine, Singapore Airlines got hit with €74.8 million, and my friends at Cathay Pacific and Qantas were also included, with fines of €57.12 million and €8.9 million respectively.

Talking about airline regulators, Southwest and AirTran have reportedly been asked by the Justice Department to provide more information in support of their request to merge.  That's not to say their request is likely to be declined, they are merely having to jump through another hoop or two.

Usually people complain about being stuck on a plane, on the ground, for too long, so how to understand these passengers who refused to get off a plane once it had landed?  Well, okay, so many of them were probably French.

Lastly for this part of the week's newsletter, I'm sure we all remember the A320 that flew into birds after taking off from La Guardia, lost power in both engines (hmmm – I wonder what would have happened if it had three or four engines?) and successfully landed in the Hudson river?

Have a look at these stunning pictures of a US Navy E-6B flying into a flock of birds while coming in to land.  No word as to what, if any, engine damage ensued.

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