The US airlines are in a Renaissance period

The US airlines are in a Renaissance period

I know, it sounds crazy. The US airlines are in a Renaissance period (and yes, I’m employing the theory of relativity).

In the last couple years they’ve addressed long-standing problems with both traditional and creative solutions, all of which has helped them gain revenue and enhance the overall passenger experience.

There has been consolidation from a series of mergers & acquisitions, which has limited competition on certain routes but also given more flexibility and options to travellers at the same time. Competition across the transcontinental market and other specific routes have heated up, driving some prices down (shout-out to JetBlue for launching Mint!).

Innovation

The US airlines have developed innovative ways to enhance the passenger experience (pax-ex) by deploying the latest technologies. A lot of these are basic enhancements that can really make a difference to the pax-ex.

Earlier this year Delta Air Lines rolled-out biometric boarding passes at Washington Reagan. SkyMiles members who are enrolled in CLEAR can leave paper and mobile boarding passes to the past. Currently in Phase 1, passengers can scan their finger print to gain admittance to the SkyClub. Phase 2 will see passengers scanning their finger print to check their bag, enter the SkyClub and board the airplane.

Delta has also introduced a customer service experience at Washington Reagan unlike any other! Its called Delta Sky Assist, and it’s as simple as a customer picking up a phone and video chatting with a specialist. For customers with disabilities, there is a keyboard and a screen situated at a different height on the wall.

Sky Assist is basic cost reduction: the specialist can be anywhere in the US (or, really, the planet) and are still able to help the customer just the same as if they were on the phone or physically across the desk from them at the airport. If Washington Reagan is quiet that day, Sky Assist can take more calls from other airports. Its quite brilliant, actually – the airline is boosting staff “presence” across its network while decreasing overhead.

Delta is also running a pilot program with US Customs and Border Patrol to capture biometric data for passengers departing JFK and Atlanta on international flights. The data is taken when they scan their boarding passes at the gate, and meets the new CBP biometric exit mandate.

American continues to enhance their bag tracking technology – which I find they’re already good at, and certainly leaps and bounds ahead of many other global carriers.

New products

A couple years ago United took delivery of their first Dreamliner, a 787-8. They’re now operating a mix of 787-8s and -9s. Last year they received their first batch of 777-300ERs, which feature their new premium product, Polaris. Branded as a mix of Business and First, it offers direct aisle access to all passengers while still being arranged in a higher-density configuration than their competitors like American and Cathay Pacific.

United has deployed the new aircraft across its global network, and last month announced new routes for the 777-300ERs.

Out with the old, in with the new.

Delta has just taken delivery of their first Airbus A350-900 with the highly-anticipated Delta One business class suite and Delta Premium Select, the airline’s first-ever true premium economy cabin. The aircraft is meant to replace the airline’s ageing Boeing 747-400s, and the airline hopes the Rolls Royce Trent XWB engines will deliver a 20% fuel savings cost. The Delta A350 will likely ply some domestic routes before being deployed on the Detroit-Tokyo Narita sector on 30 October.

Delta has also just re-launched the Tumi amenity kit for Delta One passengers, and these go a step further on the personalization front – you can take yours to a local Tumi store to get it monogrammed.

American announced that it will invest $4.1B in new planes, which is really great news given that it’s been deploying brand-new aircraft network-wide over the last few years. These include 777-300ERs, A321s (in two configurations) and 787s.

JetBlue is expanding its Mint domestic first class route network. The expansion will see the premium cabin found on 80 routes, well beyond the initial JFK-LAX/SFO transcontinental service.

JetBlue will specifically be adding more Mint flights out of Boston, targeting business passengers and potentially gaining a lot more revenue out of a key American market.

Mint can be found on the airline’s A321s and features 24 seats in a 2-2/1-1 configuration (four of the seats are thus “Mint Suites” with closing doors). I recently flew Mint from New York JFK to San Francisco and will have a review posted soon.

Following it’s acquisition of San Francisco-based Virgin America, Alaska Airlines is looking for a fresh start. It’s launched an edgy new livery and plan to incorporate many of Virgin’s most popular features (a necessary move given how dull Alaska can be). These include playing music during boarding – at the gate and on-board – and rolling-out mood lighting across its cabins.

As far as a new products go, Alaska are planning to replace Virgin’s all-Airbus A320 Family planes with more Boeing 737s. These will feature domestic first class recliner seats, a firm statement by the Seattle-based airline that they do not plan to compete head-to-head with the big boys on the lucrative transcontinental premium sector.

So long, Virgin America

The good news is that they will launch in-flight internet – similar to JetBlue’s popular FlyFi – very shortly, with a goal of having the entire fleet outfitted by 2020. Unlike JetBlue, it won’t be free, but it will be fast, representing a twenty-fold increase over traditional in-flight wifi speeds.

Southwest is the launch customer for the Boeing 737 MAX 8, and took delivery of its first two aircraft just a couple days ago. The aircraft will be deployed shortly as replacements for the Dallas-based carrier’s oldest 737s, the -300s. The airline has 200 MAXes on order.

Bumping passengers

Even before United Airlines passenger Dr. David Yao was violently removed from a flight due to an airline-directed involuntary bump, the rate at which the US carriers were bumping passengers off flights was declining.

Involuntarily denying boarding is a last resort that directly results from airlines over-booking flights to make up for no-show passengers. Generally it can work well, and there are a couple actions airline staff can take to head-off any potential problems and an involuntary bump situation. For example, airlines will offer compensation to passengers who voluntary take a later flight or go a different route. Compensation comes in many forms: cash, vouchers, hotel rooms, upgrades, etc. It can be one or more – perhaps even a combination of all of them – it really depends on the rules set by the airline and followed by the gate agents – it is up to their discretion, but there are red lines which then lead to an involuntarily bumping situation, when passengers are denied boarding due to the flight being over-sold (read: no fault of their own).

Qatar Airways once called me while I was on my way to the airport to fly from Doha to Munich (and continue on to London Heathrow on British Airways) and asked if I’d go direct to London because they needed my seat on the Doha-Munich flight. That was an easy sell, and they even let me choose which of the morning’s two direct flights I wanted to take (obviously the Airbus A380-800 with this amazing on-board bar – Qsuites hadn’t launched yet!). This hasn’t happened to me on US carriers, but it wouldn’t surprise me if they don’t start pro-actively asking elites to re-route on more convenient, faster flights should it work for their schedule. I certainly hope they would.

The aforementioned DOT report showed that between January and June of this year, the rate of involuntary bumping was .52 per 100K passengers. After the incident, there was even more public pressure on the airlines to re-visit their bumping policies and/or to curb the practice entirely.

Some airlines – like Delta – increased the amount gate agents could offer passengers to voluntarily bump. Others, like Southwest, said they’d simply stop over-booking flights.

Gulliver, The Economist’s Business Travel column, has gone so far as to state the era of bumping passengers is basically over – and it’s largely been due to action the airlines themselves have taken. Despite the threat of Congressional or regulatory action, airlines are posting record profits and don’t want to risk angering passengers by seriously over-booking flights.

Increased Earnings

2016 was a strong year for United. The Chicago-based carrier reported a net income of $2.3B, and had its best year as far as on-time performance and delay minutes. It also had the lowest number of cancellations and mishandled bags in company history.

The second quarter of this year has seen United increase its revenue 6.4% year-over-year. In July they had their best-ever on-time departure rate. Given its really bad PR year, this is all good news for the airline’s shareholders.

Delta reported an operating revenue of $10.8B for the June quarter, an increase of 3.3% year-over-year. On the earnings call airline executives said revenue would have been even higher had Atlanta operations not taken a hit in April due to adverse weather conditions.

American reported quarterly earnings per share of $1.92, surpassing analyst’s expectations. Revenue grew to $11.1B from $10.4B year-over-year.

Second quarter operating revenue for JetBlue was $1.8B, but their operating expenses increased 11.9%.

Southwest also beat expectations with a second quarter operating revenue of $5.7B, an increase of 6.7% year-over-year. However, profit fell thanks to a variety of irregular expenses, including a new reservations system and wage hikes for flight and cabin crew.

Super Low Economy Fares

Charge for everything, always. That seems to be the rule here. As I discussed in a recent post, ancillary fares can exceed base revenue fares, and the US legacy carriers are taking a page out of the LCC’s book – and it’s paying off big time.

After a six month trial across ten markets, American is expanding their basic economy fare to their entire domestic network. The fare is as restrictive and bare-bones as it gets – more so than even some LCCs – as it does not include a carry-on nor an advanced seat assignment. It cannot be changed and is nonrefundable. As American’s Don Casey told analysts last month, it gives them the opportunity to generate more revenue through ancillary sales (like bags, seats, etc.). It also helps them defend market share in their hub cities.

Delta and United have similar offerings to American. Some of the airlines make basic economy passengers board last but they do allow one personal item on board. It varies.

A recent study by Bloomberg showed the expansion of international LCCs like Norwegian and Wow Air into America has led to a 9.1% drop in trans-Atlantic fares. It’s likely the legacy carriers will start offering these types of fares on international routes, too, in hopes they can make up the shortfall through ancillary revenue.

Frequent Flyer Programs

This is an area where things have not significantly been enhanced. The introduction of “qualifying dollars” and revenue goals to help trigger a passenger’s status has made it more difficult for the masses to gain recognition for their loyalty.

Premium passengers situated at the highest point of the elite totem pole are quite pleased, however. Dollar amount spent was never an issue for them, and they openly admit that they’re happy to see the crowds dispersed (as it were).

The airlines have also re-structured their economy fares so that the lowest codes gain less – or no – miles (not unlike their LCC rivals). They’ve also routinely de-valued their miles by hiking redemption rates meaning your harder-earned miles go less far than ever before. Not exactly the most reassuring nor pleasing news in the business.

Long-term risk

The recent court order asking the Federal Aviation Authority to re-examine the size of seats in Economy could be problematic for the airlines in the long run as they consider squeezing more people in to smaller spaces.

But even if the FAA sides with passengers, it’s not likely that they’ll order any revision of currently-acceptable seats. Those LCCs are certified as safe in the event of an emergency – I believe they will say, “OK, the current standards are the redline.”

The Department of Transportation fined some of the airlines for failing to refund passengers in a timely fashion. The fines aren’t very high – for instance, American’s fine was just $250K – but costs like these can quickly add up.

But for now…

Barring any external shocks, there’s nothing but blue skies for US carriers. Let’s hope they don’t shoot themselves in the nose gear.

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