Thought leadership for new ways to do business in support of the global aviation and travel industry.
30 April 2009
Will We Ever Get Back to Normal?
19 April 2009
Closure of the Pogo Air Taxi Idea
I'm always amazed by the clarity of vision of my old boss, Robert Crandall. The following news item appeared in Aviation Week, April 16 written by William Garvey. Note that Bob Crandall lists two issues above all - an airplane that couldn't; financing that dried up. There were many other issues but note the clarity of purpose in his remarks. Now - there is some very encouraging news in his comments. We are going to see a lot of alternative models emerge in aviation.
What I find interesting is that for the past thirty years, there has not been much change. Technology has marched on - the A380 is a sea change from the 707/VC10 era. However, the only fundamental change in the airline model in this timeframe is Southwest (and Ryan, easyJet, GOL etc). Business aviation remains the same, private aviation has seen little change. So how can Crandall claim there will be a lot of alternative models?
I believe the answer lies in two areas. (1) flights scheduled by travel companies that aggregate demand in realtime and 'charter' aircraft fit for the specific need and (2) clubs that blend the private jet industry with flexible demand to offer prices closer to the budgets of the middle class. Both of these offer real change (and many model options). Both of these are in the embryo stage and are being tried.
Item (2) was discussed in another aviation blog recently: http://www.linkedin.com/groupAnswers?viewQuestionAndAnswers=&gid=1571937&sik=1239883736371&discussionID=2566051&readyToAnswer=readyToAnswer&trk=ug_qa_usrcomm&goback=%2Eana_1571937_1239883736371_3_1
One thing I have learned well, whether you agree with Bob Crandall on a specific issue or not - never, ever discount his thoughts and predictions.
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The News Item:
After devoting several years to market analysis, equipment evaluation, pricing structures, service areas and operational planning, Robert Crandall has decided to ground Pogo, his start up very light jet charter operation, before it ever left the ground. He says he's returning what remains of the operation's seed money to investors.
"I feel badly about it," he said April 15 of the decision. "It's just one of those ideas that didn't work out."
Although Pogo was usually described as an "air taxi," Crandall dismissed that label, saying, "I don't know what that means." Rather, he described the intended service as a typical FAR135 charter operation using small jets with trips confined to the northeastern United States. The group had considered several jets, but seemed finally to settle on the Eclipse 500, primarily for its low acquisition and operating costs. However, Eclipse declared bankruptcy earlier this year after delivering fewer than 300 aircraft.
"Two things did us in," Crandall said. "First, the airplane never got built, and in fact the company went bankrupt. The aircraft still can't operate in icing conditions. So the airplane failed. And while we could conceivably use alternate airplanes, that wouldn't have provided as great a price advantage versus existing alternatives. And secondly, you can't finance anything new these days, especially in aviation."
He estimated a need for $80 million for Pogo to begin operations and said he was in New York pursuing financing the day Bear Stearns failed - "Nice timing," he noted.
Even though he is exiting the market, the former American Airlines chief predicted, "You're going to see a lot of alternative models emerge in aviation" because with the continuing contraction of airline service, "it's getting harder and harder to go from Point A to B in the United States."
"There is a market out there for alterative models that will save people time," he said, but added he's unlikely to be the provider. "My guess is it's going to take quite a long time for the market to recover. If it takes ten years, I'll be 83. So maybe I'd try again, but that's beginning to push the envelope."
13 April 2009
Interesting Rebuttal to US Airways CEO Comments
He then tackled labor relations—an area of first-hand experience given that years following the merger “completion” his company still has outstanding labor issues. I agree that the ingrained boom and bust mentality clearly is untenable. But the idea that management has unilateral power to change the situation strikes as patronizing and the playing field far from level. While management is quick to “adjust” employment and wages, it has been far less willing to curb its own compensation and perks in a similar way. And there is no hint as to just how management might resist demands for better terms in good times. Unfortunately, as long as these groups perceive each other as antagonists, there will be little progress. Both factions need to relearn that everyone at every airline is tied to its long-term success, and should share equally in profit and loss.
The real meat however, comes in the discussion of service and frequent flyer programs. The service aspect is especially intriguing since U.S. legacy carriers have been regularly pilloried for indifferent, and even rude, service. Social media sites reveal that passengers are generally most upset by employees unable or unprepared to deal with everyday problems. If many reviewers cite surliness, or some variation thereof as the predominant problem, the fix is pretty evident; see that staff are better trained and friendlier. There is scant evidence that that is happening. Southwest and JetBlue have not won customer satisfaction surveys because of their lavish meals but by consistently meeting the expectations of their customers. Attitude is a differentiator that resonates with the consumer.
And then miles. Unless US Airways differs markedly from its peers, it sells miles as well as seats—and quite profitably. At times some carriers have reported that this was the most profitable aspect of their operation so it’s pretty clear that airlines have done well by this strategy. To assert that any carrier’s sole benefit is a bunch of freeloaders is fantasy. Is US Airways ready to relinquish that revenue source? If so, I wish him well in his singular attempt to abolish the practice, at least more success than the airline’s failed attempt to charge for water and coffee.
Finally, while I would agree that the politics surrounding airlines can be complicated, the carriers themselves regularly play the system to their advantage. Witness the continuing hulabaloo surrounding Virgin America’s ownership. Apparently, arcane rules are only deemed absurd when one’s own ox is being gored.
Few would disagree with the idea that aviation both in the U.S. and globally badly needs new ideas and insights. As an industry vital to global commerce, it still is often treated as a local fiefdom, and regulated with disregard of the bigger picture. Until the world’s airlines and their regulators take a broader view, no company, irrespective of size, will achieve its full potential. Mr. Parker’s suggestions provide little to advance that goal.
Ron Kuhlmann is an aviation analyst and former editor of the Unisys Scorecard. http://web.me.com/ronkuhlmann/Site/Welcome.html