Airline Weekly - January 7, 2013
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Airline Weekly - January 7, 2013

Architects of the Renaissance: US Airways management helped shape the industry’s turnaround. And they’re not done yet.

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Cover Story

Architects of the Renaissance: US Airways management helped shape the industry’s turnaround. And they’re not done yet.

Officially, it was called Operation Clockwork. Literally overnight, on Jan. 31, 2005, Delta’s “big bang,” as some people also called it, resulted in a hub busier than any the world had ever known before or has ever known since—more than 1,000 daily departures from Atlanta.

The rationale actually lay 700 miles away in Dallas-Fort Worth, where Delta was just as suddenly shuttering a hopeless hub, creating the need to reallocate more than 100 daily DFW departures. Some went to Cincinnati and New York JFK. More went to Salt Lake City. But the bulk went to Atlanta, which happily—the thinking went—would create some other benefits.

Everyone understood that a key ingredient in Southwest’s remarkable success, even before its massive fuel hedges that now enabled it to run rings around its competitors, was its intensive utilization of assets—an airplane doesn’t make money on the ground, Herb Kelleher had discovered decades earlier. If only a legacy airline could even approach Southwest’s productivity, maybe that legacy airline might approach Southwest’s profitability.

For the time being, Delta was just trying to avoid bankruptcy. But it realized that one silver lining in a 1,000-departure-per-day hub could indeed be higher productivity and lower unit costs. That’s because with so many daily departures to most markets, it could stop purposely scheduling “banks” of flights, as is typical at hubs, and instead turn Atlanta into a “rolling hub.” Flights wouldn’t be optimized for connections, but there would always be a connection before too long—it just might be, say, an hour later rather than 40 minutes later. This approach might make Delta’s schedules a bit less desirable than, say, quicker connections in Charlotte—and that might mean slightly lower fares from high-yielding corporate travelers wanting to get to their destinations as quickly as possible. But that was okay, because everyone in the industry knew the most important objective was driving down unit costs, which would happen by reducing gate time rather than holding flights for connections.

Everyone, that is, except an airline called America West. Led by a youthful management team—its chairman and CEO Doug Parker was 43; his top lieutenant Scott Kirby was just 37—the Arizona-based carrier, with hubs in Phoenix and Las Vegas, was little known throughout the world and even throughout much of the U.S., even though it was the eighth largest U.S. carrier at a time when the U.S. still had a lot of rather large carriers. But the lowish-cost America West—its employees were relatively junior and rather productive, although it did have hubs and a business-class cabin and at one point a complex partnership with Continental—was different from almost all its competitors in that it was purposely shrinking. Only bankrupt United and even more desperate ATA, on the brink of elimination, were likewise not growing capacity in early 2005.

Indeed, Parker and Kirby held a contrarian view of capacity planning: in the new era of rising fuel costs, it was preferable to optimize for growing unit revenues rather than lowering unit costs. Shrinking capacity, in other words, might push up unit revenue... (527 of 2,108 words)

Also Inside this Issue:

The new year is young. But already, there is drama. This week, American’s board of directors will meet to discuss a potential mega-merger with US Airways. A deal is now highly likely given support by labor unions from both airlines and apparent support by many of the true kingmakers—American’s unsecured creditors.

Along with the creation of new airlines through mergers comes the disappearance of old ones though bankruptcies and loss of operating licenses. Kingfisher unsurprisingly failed to win back its suspended license, while Aerosvit of the Ukraine filed for bankruptcy. In Nigeria, meanwhile, Dana Air is flying again after being grounded following an accident last summer.

Back in 2005, what was then the U.S. Big Six rapidly began globalizing their route networks, looking to both ride the wave of international economic growth and escape the heartaches of an LCC-infested domestic market. Well with the Big Six now the Big Four and apparently poised to become the Big Three, the globalization continues. United and American have both made recent moves in Latin America. So too did the LCC JetBlue.

Elsewhere, the Turkish LCC Pegasus placed a giant A320-NEO order, leasing companies continued their bullish plane buying, Aeroflot posted solid summertime profits despite losses at newly acquired subsidiaries, Portugal rejected an offer by Avianca’s parent company for TAP, Delta bought its regional partner Pinnacle, British Airways and Finnair both announced new China routes and Air Canada unveiled its new Rouge-colored LCC.

About Airline Weekly

Airline Weekly is a subscriber-supported publication, paid for by readers who want a more interesting, more valuable read about the airline business. Each Monday, Airline Weekly reports who's flying where, new marketing approaches, fleet, finance and key airline and airport data. And, most importantly, Airline Weekly readers enjoy a critical context, insightful analysis and new ideas found nowhere else.

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