Airlines get bruised by fuel-price bets

[CallawayGolf]

Well when you spend the kind of millions on media advertising you buy yourself a free ride when bad news does hit. As to the last five items they're all total bull feces. WN has a business plan that from day one said "That's not who we are, accept it or reject it". Clearly they have found acceptance and success in the marketplace, Media & Wall Street.

As to the fines, I'm guessing you've moved out of the glass house regarding HP's history of a rocky relationship with the FAA. Fines, near grounding of the ENTIRE Fleet. When it comes to being a bigger drinker even there Herb Kelleher kicks old DP's assets AND managed not to get locked up. WN has a business model that generates sustained profits without gimmicks. US doesn't, Game, Set, Match to WN

You mean they found success apart from the business traveler where they just came in last among the big five. "Bull feces"? Did I post something that is factually incorrect or incorrect on any other level for that matter?

All airlines get fined by the FAA, but only WN has the distinction of having the highest fine ever which even after it was handed down WN still failed to properly inspect per FAA requirements and had a jet lose a sizable portion of its skin due to stress.

Okay; lets put all that aside and assume you were in a position on the US BOD. How much would you offer Herb to come and be CEO and what are the top five things you would expect him to change given the current situation (assets, liabilities, labor) as US has today? What would he do differently than Doug and how would he pay for it (assuming changes cost money, at least in the short-term)?

 

[BoeingBoy]

but only WN has the distinction of having the highest fine ever

Actually, AA has that distinction. The survey was of business travel managers, not business travelers.

Jim

 

[SparrowHawk]

You mean they found success apart from the business traveler where they just came in last among the big five. "Bull feces"? Did I post something that is factually incorrect or incorrect on any other level for that matter?

Let's make a clear distinction those who rated WN last were Business Travel Managers, NOT the business traveler! It's a very big distinction. Check out the OKC-Dallas flights and most of them are FULL of business travelers. Other routes as well. WN has taken significant steps to attract business travelers not Travel Managers. They don't get involved in some of the shenanigans that goes on with rebates and discounts, so the Travel Managers don't like them even a little. I used to have to get approval to fly them.

Okay; lets put all that aside and assume you were in a position on the US BOD. How much would you offer Herb to come and be CEO and what are the top five things you would expect him to change given the current situation (assets, liabilities, labor) as US has today? What would he do differently than Doug and how would he pay for it (assuming changes cost money, at least in the short-term)?

First Herb is to old now and frankly he isn't the answer. The answer is in Mr Kelleher's words regarding WN.

S+B: Virtually all of the major U.S. airlines have tried to copy you at some point. None of them has come remotely close. What’s so hard? It looks like it ought to be a pretty simple model.

KELLEHER: We’ve had many airlines that professed that they were going to be low-fare carriers. There’s only one problem: They had high costs. You can do that, but Chapter 11 is your destiny.

I think the difficulty for them is the cultural aspect of it. That cannot be duplicated. One of the things that demonstrates the power of people is when the United Shuttle took out after us in Oakland. They had all the advantages. I mean, they had first-class seats for those who don’t want to fly anything but first class. They had a global frequent flyer program, which we did not have. They probably spent $25 million or $30 million on their advertising campaign. I probably have something like a thousand letters at my office that tell you why they finally receded from Oakland. Those letters say, “Herb, I tried them, but I just like your people more, so I’m back.” Don’t ever doubt, in the customer service business, the importance of people and their attitudes.

S+B: So now we’re back to the intangibles — the “spirit” competitors can’t go buy. How does a company create a culture like that?

KELLEHER:[/b] We used to have a corporate day. Companies would come in from around the world and they were interested in how we hired, trained, that sort of thing. Then we’d say, “Treat your people well and they’ll treat you well,” and then they’d go home disappointed. It was too simple.

The question are from an extensive interview by Strategy + Business Magazine, called the Thought Leader Interview a few years back. The point Herb makes in the 2 answers are two things Doug Parker & Scott Kirby will never understand for as long as they have a hole in their arse. Parker is an excellent Manager but a poor leader. US Airways will NEVER flourish until there is a complete and total culture change. In order to accomplish the culture change you have to have those at the top "Buy In" and these guys never will because they think they're the smartest guys in the room and NEWS FLASH!!! They aren't.

 

[CallawayGolf]

Actually, AA has that distinction. The survey was of business travel managers, not business travelers.

Jim

Has AA settled on a final amount of their fine yet? WN had the highest fine (beating out Eastern), but then negotiated it down to $7.5 million. That amount is the highest ever paid unless AA has settled and paid their more recent whopper of a fine.

Yes, the survey was of business travel managers. Those who negotiate with the airlines sales departments and/or manage a centralized booking service for companies. It would seem what these people think about booking business travel on major airlines would carry some weight in the marketplace.

The point is that WN doesn't beat out US and the others in the top five in every category as SH suggests. They win some and they are in the middle to bottom of the pack on other metrics, depending on which one you cite. If DL, UA, AA, and US all folded up shop tomorrow and let WN just have the monopoly on all commercial air travel using the same business model they use today, there would be far more people unhappy with that outcome than what we see today. Small market communities - gone; international travel on a US carrier - gone; various classes of service - gone; assigned seating - gone.

The funny thing is that thus far no one has disagreed with my original point that WN is treated differently by the "independent" and "unbiased" press when they make the same kinds of stumbles as their competitors. If the article had just said the WN posted a loss due to mark to market losses in fuel hedges, this angle would never have been considered.

 

[Newman]

and don't forget SWAs own set of fees too.
[/quote]
Try changing one of their internet tickets.

 

[BoeingBoy]

Has AA settled on a final amount of their fine yet? WN had the highest fine (beating out Eastern), but then negotiated it down to $7.5 million. That amount is the highest ever paid unless AA has settled and paid their more recent whopper of a fine.

Well, you said "the highest fine", not "the highest fine paid." I haven't seen whether AA has settled their fine, but it was levied over a year ago. Since their fine was over twice the size of WN's, I'd be surprised if they ended up paying less.

Jim

 

[CallawayGolf]

The question are from an extensive interview by Strategy + Business Magazine, called the Thought Leader Interview a few years back. The point Herb makes in the 2 answers are two things Doug Parker & Scott Kirby will never understand for as long as they have a hole in their arse. Parker is an excellent Manager but a poor leader. US Airways will NEVER flourish until there is a complete and total culture change. In order to accomplish the culture change you have to have those at the top "Buy In" and these guys never will because they think they're the smartest guys in the room and NEWS FLASH!!! They aren't.

We've (you and I) have discussed culture change previously. I fully support that but I'm not sure it would work. Even if US paid the highest wage rates in the industry or even double the next highest rate I'm not convinced the culture would change based on that alone. People would almost immediately come to expect that as the new norm and feel they were fully entitled to that and more since they have "invested" so many years with the company at wage rates they didn't like.

I clearly remember nearly falling out of my chair when I was a in my HS freshman business class when the teach said that studies have shown that money is not a motivator. Wel technically it is a motivator when people are on a commission, piece-rate program or are self-employed, but not so much when people are working for a hourly or annual wage. Give someone a 7% or 15% raise and their level of productivity and job satisfaction will last for a few weeks at best, then they start to slip back into their old routines and thinking that the company owes them more.

So a culture change program is fine, but I wouldn't give it much of a chance for success. Throwing money at a problem does not help in most situations (look at the federal government) and the best thing that could be done will never be done - getting rid of the poor performers and company haters. Unless those bad apples get the boot, culture change will be a failure.

Not only that, but even you should be able to admit Doug has rarely faced periods of good times since he became CEO. He had been in that position for 10 days when 9/11 happened and then he was faced with a very real threat of liquidation that had nothing to do with the decisions he made in those first days in charge of AWA. The next few years were certainly rocky even though he made excellent progress in turning the airline's performance around. Then, the perfect opportunity came along to acquire US which was on death's door and needed massive restructuring and systems integration in order to get the two companies where they needed to go. Then he had to deal with the loss of Jeff as COO and the company's performance suffered with the loss of his leadership. Then the oil prices spiked putting the company once again dangerously close to liquidation again only to see prices fall because the economy tanked once the democrats got a hold of the purse strings in Washington again in 2006. Some stability has occurred in 2010 and 2011, but then the east pilots have been trying to put the airline into the ground with their illegal job actions and JCBA evasion techniques which prove they wouldn't accept any reasonable offer to make labor peace. So, at what point during that period would you have proposed Doug attempt this radical culture change which would cost a great deal of money long before any tangible benefits could possibly be seen?

 

[CallawayGolf]

Well, you said "the highest fine", not "the highest fine paid." I haven't seen whether AA has settled their fine, but it was levied over a year ago. Since their fine was over twice the size of WN's, I'd be surprised if they ended up paying less.

Jim

Sorry, I guess I wasn't clear. I can't seem to find anywhere that shows where AA has paid their 2010 fine (though I'm not looking too hard either). Given AA's current financial condition I would say there is a fair shot at the FAA reducing their actual fine down below what WN paid. Does the FAA really want to get their largest fine money in history out before the unsecured creditors in a bankruptcy situation? How would that headline look?

 

[BoeingBoy]

Since no one knows if or when AA might file BK, I suspect the FAA is more concerned in appearing hard on airlines than with any potential creditors.

Jim

 

[Pi brat]

Looks like US made the right bet on fuel for the first 3 quarters, we'll see about 4th next week. Predictions for 2012?

 

[FWAAA]

Looks like US made the right bet on fuel for the first 3 quarters, we'll see about 4th next week. Predictions for 2012?

I don't know if it was the right bet. For the first three quarters, US paid 10.47 cents per gallon more than AA did. On the 1.09 billion gallons US purchased, it paid $114 million more for fuel than it would have at AA's price. Maybe the fouth quarter will turn things around?