Showing posts with label jetBlue. Show all posts
Showing posts with label jetBlue. Show all posts

jetBlue smokes competition in J.D. Power survey

The 2009 J.D. Power and Associates 2009 North American Airline Satisfaction Study was released earlier today, and jetBlue came out top, not just in the low-cost carrier group but overall, as well - for the fourth year in a row. For the 'traditional network carrier' category, Alaska topped the list for the second consecutive year. (Just to be clear, JD Power defines low-cost carriers as airlines that "operate single-cabin aircraft with typically lower fares," while 'traditional network carriers' "operate multicabin aircraft and use multiple airport hubs." It also considers AirTran to be an LCC, although it does operate multicabin aircraft.)

I spoke with Paula Sonkin, VP Travel and Real Estate at J.D. Power, who said that cost was the biggest influence for most passengers, and they've not been favorably impressed by the various sources of ancillary revenue (read: fees and charges) that the airlines have added recently. This, along with with declines in in-flight service, has led to overall customer satisfaction with airlines this year on the decline for the third straight year, reaching a four-year low (ouch). The only airline that improved its position versus last year was Southwest.

That's not to say that everything is gloom and doom, however. Sonkin pointed out that the airlines that did well - for example, Alaska, which was 4th place in 2007 and rose to 1st last year - did so because they focused on improving the things that were in their control. Fuel prices, a weak economy - those things can't be changed, and the things that occur as a result (such as increased fees and lowered employee morale, which can lead to poorer service) can be expected, if not necessarily liked. But Alaska really made strides because it improved its pre-flight process - that is, its website, the ticket booking process, and especially the check-in process, which the airline made faster and friendlier. Also on the plus side, passenger-reported flight delays and check-in times were reduced, and the general on-time arrival rate went up by more than 5% versus last year. “Despite the economic stresses that airlines are under, they are recognizing the value of passengers’ time and trying to make air travel more expedient and efficient,” said Dale Haines, senior director of the travel practice at J.D. Power. “Unfortunately, any improvements in customer satisfaction are being offset by passenger displeasure with cutbacks on in-flight services, increases in fees and issues with the helpfulness and courtesy of flight crews.”

jetBlue did very well, especially in the aircraft category (of course, flying a bunch of relatively new planes with in-flight TV might help), although Southwest really managed to place a strong second place (tied with WestJet), and the trend is that the airline is closing the gap with jetBlue. All of the airlines were scored on a 1000 point scale, and interestingly, even the lowest-ranked low-cost carrier (AirTran) still managed to beat the top-ranked traditional network carrier (see charts below). Delta and Continental performed adequately for the network carriers, with US Airways (haven't they branded themselves an LCC?) coming in dead last - maybe it was that whole experiment with charging $2 for drinks that really did them in. For the full results, head over to J.D. Power.
photo by MHJohnston from Flickr, licensed under the Creative Commons

Lufthansa's bmi takeover drama continues

Although the takeover of British carrier bmi (formerly known as British Midland Airways) by German airline Lufthansa was approved on Thursday by European Union antitrust authorities, the German newspaper Suddeutsche Zeitung yesterday reported that Lufthansa is backing out of the deal, apparently after taking a closer look at bmi's rather precarious financial situation and deciding that the price would be too high.

bmi, which lost $151m in 2008, was 30% (minus one share) owned by Lufthansa, 20% by Scandinavian Airlines, and 50% (plus one share) by former British Midland chairman Sir Michael Bishop. Last October, Lufthansa announced that it would be acquiring Bishop's stake in bmi, meaning that the German carrier would be effectively controlling bmi.

bmi is one of the latest of Lufthansa's potential acquisitions; it already wholly owns Italian carrier Air Dolomiti, German low-cost carrier Germanwings, Swiss International Air Lines, Lufthansa Italia, and regional carriers Eurowings and Lufthansa CityLine, among others (it will wholly control Austrian Airlines pending approval by the EU later this year). It also owns significant stakes in bmi, Luxembourg's national airline Luxair, Belgian carrier Brussels Airlines, and jetBlue.

Lufthansa to buy stake in jetBlue

jetBlue announced earlier today that Lufthansa would "make a minority equity investment" in jetBlue. The agreement between the two airlines states that Lufthansa will buy about 42 million newly issued shares of jetBlue (19% of the airline) at $7.27 a share, about $300 million. Lufthansa would also get a seat on jetBlue's Board of Directors. (Per US law, Lufthansa would be limited to under 25% voting rights.)

Lufthansa CEO Wolfgang Mayrhuber said that Lufthansa was "very pleased to become an investor in JetBlue" and that "this investment presents Lufthansa with a compelling opportunity to invest in the U.S. point-to-point carrier market as the industry continues to evolve." Dave Barger, jetBlue CEO, was pleased with "this significant endorsement of JetBlue's franchise from one of the most respected leaders in global aviation" and said that the investment "will also improve our balance sheet and give us greater financial flexibility as we move into 2008."

In a conference call this afternoon, it was revealed that Lufthansa was the one that approached jetBlue (sometime during the late summer). The deal should close sometime during the first quarter in 2008. This seems to have been the right time for Lufthansa to move in for a deal; shares of jetBlue are relatively cheap at the moment, and the airline could use some extra cash. jetBlue has had some trouble over the past years with high oil prices and increased competition (especially now that Virgin America's competing in the transcontinental market). Shares of jetBlue have fallen by half since last February's mess at JFK involving passengers stranded on planes for several hours, an event which damaged the airline's reputation. In addition, with the low value of the dollar versus the euro, Lufthansa's getting a pretty good bargain.

As of now, the two airlines haven't said that they would cooperate in any areas other than "operation cooperation". No code-share deal was announced, either, and besides, jetBlue's reservation system doesn't allow for code-sharing (at least not yet). If the airlines were to integrate schedules, Lufthansa would certainly benefit from US domestic feed at JFK. Then again, Lufthansa's premium passengers might not want to go from Lufthansa's premium classes of service to jetBlue's all-economy service (even if they do have DirecTV).

But there are still a few unanswered questions. Lufthansa is close partners with United Airlines and US Airways, all three of which are Star Alliance members. It's unknown if Lufthansa's US partners had any say-so in the deal or not, or what the potential ramifications of the deal are for the two. And there's no word yet if this could eventually lead to jetBlue becoming a Star Alliance member. United has been rumored to be interested in jetBlue as a potential merger partner, and if Lufthansa were to increase their stake to 25% and if United were to buy 26%, then the two airlines would have a controlling interest in jetBlue. Right now Lufthansa is limited to 25% ownership, like all foreign carriers, but if this cap is lifted (and with the Open Skies deal announced earlier this year, it might be soon), then Lufthansa might eventually purchase a controlling stake in jetBlue.

Skybus VP: we're "best financed" US airline

According to Skybus vice president Dennis Carvill, Ryanair-imitator Skybus is "the best-financed airline in the history of the aviation industry in the United States... We are capitalized to $160 million of initial startup capital, and that has given us the ability to do what we are doing, that is to grow rather quickly." By comparison, jetBlue, which started out a few years ago with quite a lot of cash, had an initial capitalization of $128 million.

Although initial capital is indeed important (and it certainly helped out jetBlue), Skybus' lack of amenities (e.g. no in flight entertainment, no food or drink, no telephone number to call) might not sit well with some passengers, and Skybus will have to focus on keeping its flights prompt in order to make up for the often out-of-the-way airports that they service.

United's "urge to merge"


The world of airline mergers has been buzzing since last week's report that United Airlines and Delta Airlines were being pushed by Pardus Capital Management (which owns a sizable stake in both airlines) to merge. Delta CEO Richard Anderson stated that "there have been no talks with United regarding any type of consolidation transaction and there are no such ongoing discussions." In a press release, Delta said that it "will not speculate on possible airline consolidation".

It's no secret that United has been shopping around for a merger partner for some time. They haven't bought any new planes in quite some time, and United has relatively thin profit margins and high debt.

That said, rumors have been flying for the last few years that United would find a merger partner. These partners have included Continental (which already said no) and Northwest (which wouldn't work out because the two airlines both have strong Midwest hubs) - almost everyone except American (a United-American merger couldn't happen because the combined airline would be too big). The latest to crop up on the aviation forums involves jetBlue, since the two airlines have complementary fleets/networks. United would use jetBlue as an opportunity to become a player again at JFK, which would tie in nicely with international feed from Star Alliance carriers and make it more competitive on the East Coast. And a United-jetBlue merger would also put an end to the fight at Washington-Dulles between the two airlines.

But a United-jetBlue merger isn't too likely, and any merger wouldn't be a cure-all fix for United. Even though United may be holding out on buying new planes to attract merger partners, they're going to need to upgrade eventually to keep up with competitors. And employee-management relations aren't very good, either. Merger or no merger, United really needs to address these issues (and others) if it wants to remain a viable competitor in the industry.