AvTalk Episode 217: The NEA is DOA

AVT 217 Transcript
EPISODE 217
[EPISODE]
[0:00:07] IP: Hello and welcome to episode 217 of AvTalk. I am Ian Petchenik, here, as always
with –
[0:00:15] JR: Jason Rabinowitz. How's it going, Ian?
[0:00:18] IP: It's going well, Jason. How are you sir?
[0:00:20] JR: I am well. Thank you.
[0:00:22] IP: We continue along with what appears to be, and I know the second I say this, that
it will no longer be such a period, but a period of relative calm for the things that we talk about
on this show.
[0:00:37] JR: Bold statement right there. That's a bold statement.
[0:00:39] IP: Yeah. I mean, putting the show together this week, I mean there are certainly
things to talk about. There are certainly things happening in the industry, but I feel like, we're in
that pre-airshow low, where –
[0:00:52] JR: There's a lot of things going on. Yeah.
[0:00:54] IP: Yeah. Not much is happening externally. Everything's under the surface and then
come middle of June when the Paris Air Show arrives, it seems like it's going to be a very busy
summer.
[0:01:10] JR: Yes. Don't forget IATA AGM, too. A whole lot of stuff is going to drop by and
probably, Turkish also ordering 6,000 airplanes, maybe. They're saving the best for the middle
of the summer when everyone wants to be off and on vacation.
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[0:01:25] IP: Right. Who doesn't love wearing a suit in Paris in the middle of June when it's 900
degrees? Or raining the entire time?
[0:01:33] JR: Or both at the same time.
[0:01:34] IP: Or both. Yes indeed. Or both. We have a good show this week. We have Brian
Summers, who is the Founder and Editor of The Airline Observer, a newish publication. Brian
Summers is by no means new-ish. He's been around the industry for quite some time, writing
and analyzing the aviation industry, and he's going to talk to us about the demise of the
Northeast Alliance that was the – or I guess is for the next few days. The alliance between
American Airlines and JetBlue focusing on, Jason, I'll give you one guess what region it focused
on.
[0:02:12] JR: It might be the Northeast.
[0:02:14] IP: It might be. It might be. But we'll have to find out from Brian a little bit later in the
show.
[0:02:17] JR: We'll have to get the judge’s determination on what region is impacted here.
[0:02:21] IP: Does the Northeast violate the Sherman Act, just saying the word Northeast?
We're going to talk to Brian about that a little bit later in the show. But we've got plenty to
discuss before that, so let us jump in. Following on our conversation with Robert Sumwalt last
week, who is the former chair of the National Transportation Safety Board here in the U.S., the
current chair of the National Transportation Safety Board, Jennifer Homendy, had an in-person
roundtable, which post-pandemic side note, it's fun that you need to clarify whether or not things
are going to be in-person still, which I think is –
[0:02:59] JR: Pants required.
[0:03:00] IP: Yes, pants required.
[0:03:01] JR: Good to know that ahead of time.
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[0:03:03] IP: It's DC, so I think pants are definitely required. But Jennifer Homendy hosted a
roundtable on runway incursions, and this involved some of the NTSB investigative staff, as well
as airline operations, personnel, pilots, dispatchers, air traffic controllers, things like that. The
event was proactively looking for ways to make our skies safer, reflecting the agency's
commitment to meeting the same high standards we ask of others.
A very interesting event. Some news that came out of it, one of the things that Homendy
revealed during the roundtable was just how close the incident in Austin between the Southwest
737 that was departing and the FedEx 767 that was arriving was, how many describing the
single light and very small portion of the Southwest 737 that the FedEx pilot saw that induced
the go-around that saved the day. That was a bit of interesting news.
The other side of things that I thought was very interesting was the focus of the roundtable and
we'll put a link in the show notes to a readout and some reporting on what happened at the
roundtable. I haven't been able to find a recording quite yet. If we do, that'll also go in the show
notes, was that Homendy not directly contradicted Robert Sumwalt's comments from our show
last week, but I think they were a little bit at odds with his comments that the training isn't
necessarily the training needs to increase, but rather, go back to basis, where it was Homendy
was saying that perhaps, that new training is necessary. It would be interesting to see how the
FAA's independent safety review team's report collates to the work that the NTSB is doing on
the same subject. Something to keep an eye on.
[0:05:01] JR: It's also interesting to remember that what the NTSB just hosted is, I believe,
specific to runway incursion events, while as what the bigger multi-agency, not just NTSB
working group will be looking at is beyond just runway incursions to all of the other safety
related incidents that have happened over the last year or two. Some of which come to mind are
the United 777 that of Honolulu, I believe, that almost found itself in the Pacific, or the, I guess,
you could also throw in there the Emirates 777 that almost found itself parked in a Dubai
housing complex.
What they are doing, what Robert Sumwalt is involved in looks just beyond runway incursions
as well. As what the NTSB did was just specifically, there was a really seemingly, at least
subjectively, an increase in specifically runway incursions work. Maybe more training is
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necessary for that specific type of incident, as opposed to what the working group is looking at,
which is all encompassing safety, safety, safety from A to B, not just don't enter the runway
where you're not supposed to enter the runway.
[0:06:12] IP: Yes.
[0:06:12] JR: It's also interesting. I would like us to find a link to what the NTSB just hosted, for
the audio, or transcript that I did not know that the pilot of the FedEx aircraft that went around,
instead of pancaking on the Southwest 737, I did not know that they made visual contact with, I
guess, a single light on the 73, because we had suspected that maybe their technology helped
them a little bit, because UPS and FedEx are fairly unique in that they have some pretty high-
tech thermal imaging onboard their aircraft, and we didn't know whether or not that actually
played a role in saving the day there. It seems like, maybe not. I'd love to know why not.
[0:06:53] IP: Well, yeah. We don't know how they saw it, so we don't know whether that
enhanced vision system, enhanced flight vision system, if that was the assistive device that
allowed them to see the aircraft. It may have been, but we just don't have that information yet.
[0:07:09] JR: We'd love to know that answer.
[0:07:11] IP: Yeah. I would love to. I mean, I'm very much looking forward to reading that report
when it comes out. Sticking with things that we've already talked about, but we're going to keep
talking about, Go First has some good news, bad news here, I guess, for the airline. They want
a ruling against their lessors that are trying to repossess the aircraft. The initial ruling –
[0:07:32] JR: That was quick.
[0:07:34] IP: Well, it's interim, but continuing. The first round said, you have bankruptcy
protection and lessors cannot repossess their aircraft, because by agreement and convention,
they cannot repossess aircraft for airlines that are operating under bankruptcy protection. The
lessors appealed that ruling and said, “No, we want our aircraft back, because the airline is
basically, hiding behind bankruptcy and there's no way that they're going to be operating again.”
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The ruling from a tribunal in India says that the lessors cannot take those aircraft back, at least
not yet. We'll see how this goes.
The lessors are arguing that they canceled the leases before they applied for bankruptcy
protection, or received bankruptcy protection. But this seems like a lot of legal wrangling. Once
again, the lawyers are going to be the winners in this respect. On the other side of things, Go
First has again pushed back any restart flights. It is now May 26th. It's just when you download
the podcast, just check and see if Go First flights are operating, because it seems to be they just
keep moving it back every Friday. We'll see.
[0:08:49] JR: Not great when they keep pushing it back. As we've talked many times about how
the more – I mean, coming back at all from suspending operations is difficult enough, but the
longer you go, the more difficult it becomes, the more people you lose, the more staff find jobs
elsewhere. Yeah, fingers crossed there. Not an easy thing to come back from.
[0:09:10] IP: No. But hopefully, they can manage that. That leads us to our on again, off again
coverage of Jet Airways. I think this is 2.0, 2.5?
[0:09:21] JR: 2.1 V1.
[0:09:23] IP: 2.1 V1. There you go. They had an air operator certificate from May 20th, 2022 to
May 19th, 2023. They no longer have that air operator certificate. That certificate has expired.
[0:09:39] JR: Now what?
[0:09:39] IP: It seems like Jet Airways no longer has much of a staff as well. There has been no
request to extend the AOC, and it sounds like Jet Airways is not going to happen. They got a
couple of planes painted.
[0:09:56] JR: Yeah, not terribly surprising. I guess, disappointing for everyone involved. This
would have been a very long lapse between the last time Jet Airways operated and the restart of
that AOC. Yeah, not surprising. But, man, India can't really catch a break right now aviation-
wise.
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[0:10:15] IP: No. It still boggles my mind that given the growth that the Indian market is seeing,
the number of passengers that Indian airlines are going to carry, that there's not, I guess, more
structural investment here. Perhaps, we'll see that as Air India really begins to turn around and
completes the Vistara merger and all of these things fall into place.
Speaking of mergers, it's entirely possible that by the time you are listening to the podcast this
week, Lufthansa and ITA Airways will have announced their, whatever they're going to
announce. They've been in merger talks. Lufthansa wants to buy a portion of ITA, but what that
portion is, how big it is, what the terms look like, we don't know. It sounds like, it could happen
this week.
[0:11:14] JR: That's nice, I guess. Sounds the Italian government might be getting a nice
payday out of that, finally, finally, finally, out of the whole Alitalia restructuring. It sounds at least
initially like, Lufthansa's going to take maybe a minority stake, or a very high minority stake, and
then within a few years they will take a overwhelming majority stake, but those details aren't
quite finalized yet. This is a saga that I'm excited to just have to never talk about again.
[0:11:44] IP: But we'll have to talk about it again, I promise. Something will happen and we'll
have to talk about it again.
[0:11:48] JR: All right. If you insist.
[0:11:50] IP: Let's keep it with Lufthansa. Lufthansa said when they ordered their 787s that they
would opportunistically look to increase their widebody fleet. The focus on that comment was in
787s and picking up NTU frames of 787s. They're also doing the same with the A350.
Lufthansa's going to pick up at least four frames from Irish lessor, Deucalion. They are former
Latam A350s that were, I think, three of which were parked and one of which is never put into
service. I mean, not very new – I mean, they're not brand-new frames, but they’re not very well
used frames either. Let's see, three are from 2016 and one is from 2019.
[0:12:39] JR: Yeah, and these are some of those types of stereotypical poor frames that just
can't ever find a permanent home. I think they started at Hainan and then went to Latam and
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now they're going to Lufthansa. Maybe they'll find a permanent home at Lufthansa. A little
surprised, Delta's not taking them since Delta's taken a whole bunch of other A350s from Latam.
Hopefully, these aircraft find their actual forever home, as you would call it, for a pet, I guess.
[0:13:04] IP: Makes the A350 sound like a puppy.
[0:13:07] JR: Well, these aircraft, they've been looking for a home for a while. None of the
airlines they have been assigned to have been too financially stable, I guess. Certainly not
Hainan. Latam went through bankruptcy, was it? I don't know.
[0:13:21] IP: Yeah, they did.
[0:13:23] JR: Lufthansa seems like a nice, steady home where they'll be wanted and loved.
[0:13:27] IP: You know what? I don't know that I would love to find out and I'm sure somebody
out there knows. Is Hainan the airline that has ordered the most aircraft and not taken delivery
of them?
[0:13:42] JR: Ooh, that's possible. I feel like this, if you name an aircraft type, Hainan has at
some point had an order for that aircraft, probably except the A380. Yeah, it seems like anytime
you come across an aircraft that was NTU, not taking up, Hainan had something to do with it at
some point.
[0:14:02] IP: They were involved somehow.
[0:14:04] JR: If it wasn't Hainan, it was probably Avianca, or one of the many Aviancas. Yeah,
between those two, yeah, some aircraft just don't ever find a true home. These four, or possibly
six A350s, they're going to get their home.
[0:14:20] IP: I love how you've taken an emotional attachment to these four A350 side. I'm
enjoying this softer side of you, Jason.
[0:14:28] JR: Yeah, they need a home.
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[0:14:31] IP: This is a weird story that is a lot of back and forth and they said, you said, we said,
he said, she said, Niceair was a virtual airline based in Iceland. They flew out of the airport in
Northern Iceland, Akureyri, I think is how you pronounce it? Probably not.
[0:14:52] JR: Yeah. I'm sure you got that completely right.
[0:14:54] IP: But I'll work on it. Anyway, they flew out of Northern Iceland and they operate, or
they had Hi Fly Malta operate an A319 for them. That was their only aircraft. They operated for
less than a year. In May, they had to suspend flights because Hi Fly took the plane back. Then it
turned out that the aircraft is being repossessed by lessor Avalon, because –
[0:15:24] JR: Hi Fly.
[0:15:26] IP: Correct. Niceair, an airline who was banking on Hi Fly having this plane available
so that they could operate, so Niceair says that the aircraft was repossessed, because Hi Fly
wasn't making payments on it. Hi Fly says, “No, Niceair was not in compliance with the
contract’s terms.” At this point, Niceair is filing for bankruptcy, because they don't have a plane.
[0:15:57] JR: Well, that sucks. I don't know what else to say about that. Very odd that an aircraft
would be repossessed from Hi Fly Malta, they're not exactly –
[0:16:05] IP: Well, here's the thing though. Here's where it gets even more interesting.
[0:16:10] JR: How? Continue.
[0:16:11] IP: Hi Fly says that they own the plane and they moved the plane out of service with
Niceair, because Niceair wasn't paying for it. Now it's operating with somebody else.
[0:16:24] JR: What?
[0:16:25] IP: Yup.
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[0:16:26] JR: That just raises further questions. Not following that plan.
[0:16:31] IP: The whole thing is just very – Very clearly, there was a massive disagreement
somewhere. Somebody wasn't doing something that they were supposed to do and now the
airline's going bankrupt.
[0:16:43] JR: That's not great.
[0:16:45] IP: All your eggs in one basket. I mean, you better be sure that that's a really good
basket.
[0:16:50] JR: Yeah, a really good aircraft. But apparently, not. Man, that's a really weird story.
[0:16:56] IP: Yeah. I mean, it's just like, one of those things – If there was financial difficulties,
sure, okay. But just very, very strange to blame it on the repossession of the aircraft. If in fact,
the aircraft cannot be repossessed, because it's owned by the operating carrier.
[0:17:16] JR: Yeah, we'll have to come back to this one when we have some more information
and some more facts are known.
[0:17:20] IP: There's definitely more in the story.
[0:17:21] JR: Things are not quite lining up right now as they're presented.
[0:17:24] IP: I will give you, do you want three guesses, or do you want to make it tough and I'll
give you one guess to who the aircraft is operating with now? It's operating on wet lease to a
European carrier.
[0:17:36] JR: airBaltic.
[0:17:37] IP: Oh, that wasn't even tough, was it?
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[0:17:39] JR: No, you didn't even have to give me a second to think about that. If there is one
airline in all of Europe that needs an aircraft that needs it now, it is airBaltic.
[0:17:49] IP: That's what it is.
[0:17:50] JR: That was not staged. We did not have that in the notes. That is just the obvious
answer.
[0:17:54] IP: That was good. That was very good, Jason. Well done. Okay, let's move a little bit
further east from Latvia than where we last left things, and talk about, We've got some Russian
airline and aviation news to get through. One bit of news is a bit surprising. Russia has stopped
nearly all of its long haul flying mostly, because it couldn't fly to any countries that were outside
of Russia that were a ways away without risking having the aircraft repossessed. Cuba is not
such a place where Russian airlines need to be concerned with having the aircraft repossessed.
Versailles will start operating from Kazan to Havana three times a week beginning in late June,
early July. Nordwind is going to run chargers as well.
[0:18:47] JR: Yeah. We know they can do that flight. We know they can do that flight in one
hop, no problem. But I wonder what happens that one day where they have a diversion because
of some mechanical issue, or medical issue and maybe they do have to land somewhere where
they're not expecting. I wonder if and how quickly that aircraft will be repossessed.
[0:19:07] IP: That's a very good question.
[0:19:09] JR: Yeah. I'm not really liking that, because I feel like, maybe they wouldn't do the
right thing in the event of a medical issue, or maybe even mechanical. Maybe they would refuse
to divert unless they really, really, really needed to. Yeah, that's –
[0:19:21] IP: I mean, that’s a lot of open water.
[0:19:24] JR: It is a lot of open water. But when you got to divert, you got to go somewhere. For
a good portion of that flight, the nearest anywhere is right here in the US and Canada. I don't
know.
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[0:19:36] IP: I don't know either, but it'll be interesting to find out what happens. Elsewhere,
UTair is grounding 30% of its helicopter fleet.
[0:19:45] JR: 30. How many helicopters do they have?
[0:19:49] IP: 300.
[0:19:49] JR: 300? I mean, I knew they had a lot of helicopters. They even have it on their fleet
page. They have little bells and they have gigantic Soviet-era freight helicopters, heavy lifts.
[0:20:01] IP: They've got everything.
[0:20:02] JR: They got everything. But wow, 30%, it's a big number.
[0:20:06] IP: Yeah. They operate a variety of Airbus helicopters and they can't get parts for
those. They also operate a number of MI26 helicopters that are powered by engines that come
from Ukraine. They can't get those either. Their supply chains are broken. Now they're going to
start grounding up to 30% of its fleet. That's a lot of helicopters to keep on the ground.
[0:20:36] JR: It is. I've always been a little fascinated with this airline, too. It is. They have had
weird fleet for a long time. I think they still operate 767-200s with 250 passengers onboard.
That's interesting. They were an early adopter of in-flight Wi-Fi. I'm pretty sure their frequent
flyer program is just called Status. It is what it says it is. That's fun. Yeah, I did not know they
had how many? 300 helicopters?
[0:21:03] IP: Yeah, about 300.
[0:21:05] JR: Wow. Well, not anymore. They don't.
[0:21:07] IP: They still have them. They're still there. They just aren't flying all of them. Then the
last bit of news in Russia is that the Sukhoi Superjet new, the SSJ-New, is set to begin
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production next year. That's the de-westernized, or Russified version of the SSJ, and that'll go
into production next year. They're making progress there.
[0:21:33] JR: Yeah. Highly sought-after aircraft right there. As if the international variant wasn't
crappy enough, the new, I'm sure, will be a big seller by force. It'll be there. It will be an option.
[0:21:46] IP: Yes, it will be an option. The next thing we're going to talk about eases us into a
conversation with Brian Summers. That is the fact that the European Commission and the US
DOJ are not keen at all, it seems, on the merger between Asiana and Korean Air.
[0:22:09] JR: Yeah, me neither. I don't think [inaudible 0:22:10].
[0:22:10] IP: Jason’s not either.
[0:22:11] JR: I don't like it. I don't like that, too.
[0:22:15] IP: The US is concerned about the consolidation and removal of any competition on
most routes between the US and South Korea. And the European Commission is very
concerned about the elimination of competition on most routes into Europe, but especially on
the cargo routes between South Korea and Europe, writ large. Less concerned about
passengers there, because there's some more options in various cities and European carriers
flying to South Korea. It doesn't look like this merger is going to go through at this point.
[0:22:51] JR: Both of those airlines have fairly extensive dedicated freighter fleets, I believe,
right?
[0:22:55] IP: Yes, correct.
[0:22:57] JR: Yeah. I can see how that could be a concern. There aren't all that many
passenger airlines with a dedicated freighter fleet, but these two are one of the more prominent
examples of that.
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[0:23:10] IP: Seoul being a huge cargo hub. Not great for the chances this merger is going
through. I'm not sure what the end game is here, how they back out of it, what they try and do
instead, but it doesn't seem like the merger is going to go through as written so far.
Let's take a quick break. When we come back, we'll chat with Brian Summers about the
entangling alliances in the Northeast and how they're about to be unentangled. We'll be right
back.
[CONVERSATION WITH BRIAN]
[0:23:41] IP: Welcome back. We are now joined by Brian Summers, who is the Founder and
Editor of The Airline Observer. He is a longtime aviation industry journalist and analyst. He has
graciously joined us today to talk about the Northeast Alliance, what it was, what it is for the next
few days, and what that all means for JetBlue American Airlines and the future of industry
consolidation. Brian, thank you so much for joining us.
[0:24:12] BS: Thanks for having me. I'm a big fan of the show.
[0:24:15] JR: Hey, Brian. Thanks for joining, who is definitely not Brett Snyder. Sorry about that
again, but welcome. Happy to have this corrected on the record.
[0:24:23] BS: All press is good press, Jason.
[0:24:27] IP: We've not had both of you on the show. At one point, we'll have to have both of
you on the show together, and we'll play some Brett, or Brian game. As our regular listeners
know, there was a big shake up in the industry heat last week.
[0:24:46] JR: Friday. That came out Friday at 5.
[0:24:49] IP: Yeah. Yeah, exactly. We wanted to dive into it this week. Brian, you've been
covering the movement of the NEA, this court case coming up and now the ruling. I think it
might be worth starting of what is, or what is the Northeast Alliance between JetBlue and
American Airlines?
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[0:25:09] BS: Yeah, it's a good question. As we all know, American Airlines has been
undersized in the Northeast for a while. Didn't want to compete so much in the New York region,
but it had all these slots, right? Vasu Raja, the Chief Commercial Officer over at American came
up with this grand idea that they would go into an alliance with JetBlue and essentially, pool their
resources. It felt to me very close to these joint ventures that we see across the Atlantic. But
there was one issue that they didn't have. Now British Airways and American have antitrust
immunity across the Atlantic, so they can't be sued by the Justice Department for pooling their
resources.
American and JetBlue got buy-in here to pool resources on the East Coast from the Department
of Transportation, but not the Department of Justice. As listeners know, and you know, DOJ
assued a couple of years ago to stop this Northeast Alliance. There was a trial last week. As you
say, the decision just came out recently.
[0:26:10] JR: The judge had a lot of things to say. It seemed like, most of this turned on the
judge's actual interpretation of what exactly competition means. I'll pull this one quote. This case
turns on what “competition” means. To the defendants, competition is enhanced, if they join
forces to unseat a powerful rival. The Sherman Act, however, has a different focus. Federal
antitrust law is not concerned with making individual competitors larger, or more powerful. It
aims to preserve the free functioning of markets and foster participation by a diverse array of
competitors. Can you tell us a little about what exactly JetBlue and American were trying to do
here? Because it sounds like, they were trying to band together to compete against somebody. I
have a feeling you're going to tell me it's probably Delta. What were they trying to accomplish
with this?
[0:27:03] BS: Yeah. The two airlines were trying to compete against Delta in New York and
Boston. They were also trying to compete against United, which is essentially a New York airline
at Newark.
[0:27:15] JR: Thank you for clarifying that. That's important.
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[0:27:17] BS: As you say, the judge said like, “It's great. You two airlines are undersized in
these key markets. Under the antitrust act, which is, I think, more than a 100-years-old, you
guys being undersized is not the government's problem.” They were still, I don't know if you
want to use the C word, colluding. I mean, they were doing things, it was all out in the open.
They were doing things that we as airline analysts know are usually a no-no, right?
They would get together and decide, “Okay, JetBlue, you're going to fly this route from Boston.
American, you're going to fly this route from New York.” In some cases, they decided that it was
not necessary for both airlines to fly the same routes. At other points, according to the decision,
they decided one airline would fly one time of the day, one airline would fly it another time of the
day, which makes them not really competitors. They had revenue sharing going in some ways.
They were acting more like one airline than is typical in an alliance without antitrust immunity.
[0:28:16] IP: Forgive my ignorance here, but they got approval from the Department of
Transportation to do what? And stopped from going to the DOJ. Why?
[0:28:27] BS: Okay. Well, let's see, gentlemen, I've been media trained. I don't know if you've
been media trained. One of the things that you learn in media training is that you should not
opine on something that you don't know about. It's not that I don't know about this as an airline
analyst, but these are questions better posed, I think, to antitrust lawyers, or lawyers in general.
My basic understanding is this was a decision by the DOT under the Trump administration,
which was essentially, approving anything at that point. The DOJ has the right to not go along
with the DOT. When the Biden administration came in and the DOJ changed, they said, “No, this
is not right.” They seem to stop it.
[0:29:13] IP: I mean, that, to me, I mean, as a timeline certainly makes sense. What happens
now that a judge has basically taken an axe to JetBlue and American’s agreement?
[0:29:29] BS: You guys need an antitrust lawyer on the show.
[0:29:33] JR: Do we know any of those? I don't think we know any of those.
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[0:29:36] BS: Look, the decision says the airlines have 30 days to unwind this. That clock has
already started as we're talking here. I think it's possible that the airlines are going to appeal
this. We just don't know for certain. Both airlines put out pretty brief statements that said, they
were thinking about their next steps, but I don't think the A word, appeal, appeared in those.
[0:29:59] JR: I don't believe it did.
[0:30:00] BS: Yeah. It's really just not clear what happens next. I guess, I'm the guest that's
supposed to answer that question, but I just don't know.
[0:30:07] JR: I don't think they know yet, but we do know that they were given a very tight
window here, just 30 days to unwind what has taken years to put together here. Of course,
we're just getting into the start of the summer season. Airline resources are hanging on by a
thread. The FAA is hanging on by a thread. This is going to be really, really complicated if they
do actually have to go and unwind the NEA. A lot of routes served by JetBlue, but not American
will suddenly, I don't know, be reversed and a lot of rebooking will happen.
Right now, LaGuardia to Boston, a prime, very lucrative at times shuttle route, American doesn't
even fly it. They tossed all that over to JetBlue. I can't imagine that in 26 days, American just
won't have any route options between Boston and New York. That would be crazy. I'd have to
imagine there's some stay issued here, or appeal. But you're right, neither of them have actually
said the scary A word.
[0:31:09] BS: Yeah. I just want to point out that that LaGuardia-Boston situation, which was
pointed out by the judge, does seem to the outsider, to the non-legal mind, as a pretty good
example of how the NAA might not have been as pro-consumer as the airlines made it out to be
with American that had been on this route forever, US Airways had it, and be like, “Yeah, we're
not going to fly this very key route between two business cities anymore. We're just going to let
JetBlue do it for us.” You imagine when American comes back on the route, if they do it for
strategic reasons, prices probably will go down. Consumers will probably benefit.
[0:31:47] JR: I hope so. Yeah, you're right. That was a prime example of competition, because
JetBlue only a few years ago, probably 2017-2018 started heavily competing in the shuttle
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market directly against American by offering what they called a shuttle route between LaGuardia
at a terminal A in Boston. Suddenly, American’s not involved at all in that anymore. It certainly
seems anti-consumer from my point of view here in a route I sometimes fly, but I do understand
why the judge would really hone in on that particular route and say, “How is this possibly
consumer-friendly?”
[0:32:23] IP: Brian, I know you're not an antitrust lawyer. I know that. From an operational
perspective, how does this decision impact the airlines right now and say, they do unwind it,
what are we likely to see operationally?
[0:32:41] BS: Oh, I don't know. Operationally? How do you mean?
[0:32:45] IP: Do you think that Americans says, “Okay, now we're just going to fly all these
routes?” Or do you think we just see holes in the Northeast for a while?
[0:32:55] BS: Okay. I better understand the question now. I think a lot of us know years ago,
American was based in New York. New York is the biggest city in the United States. Maybe if
New York was any other city, American might take its ball and go home. They have that
gorgeous, newish terminal over there. I can't imagine them shrinking New York anymore. It's an
important route, or it's an important city for them. There's actually tucked in this 94-page
decision, there's an excerpt of an email that a board member wrote to Robert Isam. He said, you
can't pull out of New York. New York is New York. I imagine that American will find a way to bulk
up there.
I've covered Vasu Raja at American for a long time. He's always whined about what he's been
calling strategic routes, which he once told me were routes that you fly for some reason that you
hope will make money in the future, but make absolutely no money now, or lose money now.
You imagine if American has to go back into New York, they're going to lose a lot of money
there. The best argument that I can make is that New York is New York. I just don't see how you
seed that market to United and Delta.
[0:34:04] IP: What are we looking at as the impacts on JetBlue moving forward? I mean, their
merger with Spirit is under legal threat from the DOJ. The DOJ is arguing against it. Spirit and
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JetBlue are arguing in favor, though. I mean, Spirit has just been along for the ride mostly and
just wants to see the return for their shareholders. Where does this leave JetBlue?
[0:34:29] BS: That's a good question. Listeners know and may know, and you know that I live in
Los Angeles. I think about JetBlue, I don't know, absolutely none of the time, except when I'm
questioning why East Coasters are so obsessed with the airline. JetBlue is essentially a regional
US airline with three hubs in Fort Lauderdale, Boston and New York. They are just so desperate
to get the size and scale that they need to compete with the big boys.
I found as an observer that maybe the NEA over time wasn't all that important to them. Once
they got in their minds that they wanted to bulk up by buying Spirit, the NAA may have become
a little less important to them. American needed it, because they were just so undersized in New
York and Boston. JetBlue has decent scale out there. What it needs is a nationwide footprint.
That's why I expect it to go all in on this Spirit thing.
[0:35:27] IP: Does the loss of the NEA, or this particular ruling impact JetBlue's ability to horse
trade its way into merger approval? Do you see that in this? Or is it really too early to say,
because the DOJ seems to be gunning for any consolidation that doesn't make sense? Not
consumer friendly though.
[0:35:47] BS: Yeah, it's so hard for me to know. Probably another better question for an anti-
trust lawyer. I don't know what horse trading there is left to do. I mean, they lost this case. What
are they going to say? Well, we lost the case, but we won't do the NEA anyways, so does that
make you happy DOJ?
[0:36:03] JR: I guess, there's one thing I do want to go back to that. It's pretty clear that the
Northeast Alliance went at least one, probably many steps beyond what the DOJ felt was
acceptable for two airlines working together here. It's not uncommon, of course, to have two
airlines having some partnership. We see this with American and Alaska. We saw it previously
with Delta and Alaska. We saw Delta and WestJet. Can you give us some background on what
exactly set the NEA apart from other, I guess, formal, not alliances, but formal partnerships that
fall well short of a merger, or whatever the NEA actually turned out to be?
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[0:36:41] BS: Sure. The judge did a pretty long discussion about this, about the American-
Alaska alliance on the West Coast, the West Coast International Alliance, and he explained why
the two things were different. The Alaska-American deal is pretty standard in the industry, right?
The airlines had a co-chair agreement and reciprocal frequent flyer benefits. The airlines
historically haven't competed on that many routes, and they were two airlines with different
models. The idea of this West Coast alliance was that Alaska would keep doing what it had
always done, fly short haul on the West Coast, and then American could fly long haul from
Seattle. They were doing Seattle-London. They had some ideas about other routes.
You'd use Alaska to feed your long-haul flights there, and it was typical co-chair agreement.
There wasn't any coordination of schedules, or things like that. I believe that there was also a
carve out, the judge said, there was no co-chair on routes that the two airlines had already
flown. Maybe one of them would have been LA-Seattle, so LA-Seattle, there was no code. Each
airline handled itself. We've seen these sorts of agreements over time. Regulators don't seem to
mind them, and it works fine.
[0:38:02] JR: Do you think there's maybe a path that American and JetBlue maybe not
completely dissolved their partnership, but try to argue that, okay, “Maybe we went too far. Let's
fall back to a more traditional partnership, or alliance, like American and Alaska.” Or is this they
fight tooth and nail to get it through, or they give it up entirely? What do you see is more likely
for the next step?
[0:38:25] BS: Well, the judge certainly left that open that if the airlines tried to follow what was
done on the West Coast, that it might work. I just don't know how much appetite there is for this
anymore. I'm not in the room at JetBlue, or American trying to figure out what's going on. As we
talked about, JetBlue has other things cooking. The Spirit thing is so important for them. I don't
know how much they want to salvage, but it'll be interesting to see what happens. I just think at
this point, America needs this a lot more than JetBlue.
[0:38:55] JR: That's true. As usual right now, it certainly feels like the only winners here are the
lawyers at America and JetBlue.
[0:39:03] BS: What about consumers?
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[0:39:05] JR: Consumers, I mean, to be seen, we don't really know what the outcome of this will
be. Yeah, if we could get some competition back in New York and have American operate on
route to this traditionally operated and JetBlue competing and offering better services and lower
prices, then yeah, I will celebrate that as a win if that does happen.
[0:39:24] BS: Just think about this, guys, because I have a West Coast bias. I always feel like
I'm the only reporter with a West Coast bias. You have five airlines that are hubbed in Los
Angeles, none of whom probably makes very much money. Some of whom probably lose
money. They all try to stay roughly the same size in LA for strategic reasons. I as a traveler
benefit, because I can fly Southwest. I can fly Alaska, United American. They all fly to roughly
the same places. They do it because it's the second largest city in the United States.
If you run away from LA, then you're not relevant to your corporate customers in all kinds of
places. If you run away from LA, then one of your competitors takes your real estate. I just
imagine that American is going to look back and say, “We do this in LA. We're going to have to
compete in New York, because if we don't compete in New York, somebody else is going to take
even more share from us. We're going to be less relevant. Over the long term, we're going to be
in trouble.”
[0:40:27] JR: We have the added complexity here in New York that you don't have in LA of
slots. If you don't use them, you'll lose them. JetBlue and American have, well, American forgot
it had some slots recently and lost them. Yeah, here, it's even more vital that the airlines actually
operate as much as they can. Otherwise, a competitor, like you said, will very quickly snatch up
those slots and open up some new competition.
[0:40:52] IP: Well, the clock is now less than 30 days for the ruling, says that this Northeast
Alliance must be unwound in less than 30 days. The clock is ticking. It'll be interesting to see
what the airlines do, whether they say, okay, and walk away, or whether they appeal, or they
come up with something else. We'll keep following the story and have Brian back, hopefully in
the future, to take another look at this, or any of the other things that he is observing, because
he is the Founder and Editor of The Airline Observer. Brian Summers, thank you so much for
joining us.
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[0:41:25] BS: Thank you for having me, gentlemen.
[0:41:27] JR: Thanks, Brian.
[BREAK]
[0:41:34] IP: Welcome back. I don't know what the – we talked about before, we talked with
Brian about the end result between how Asiana and Korean Air unwind their proposed merger. It
still boggles my mind how you have 30 days to unwind something that's already been put into
place, where people have already booked tickets.
[0:41:56] JR: Yeah, I don't know. As we talked, but I can't imagine reality where 30 days is 30
days and there's no extension, or appealing that. Yeah, that's a lot of work to do for a lot of
people out in Dallas and Long Island City, or Dallas Fort Worth. I'm sorry. I don't want to
discount Fort Worth.
[0:42:13] IP: How dare you, sir.
[0:42:14] JR: I know, I'm sorry.
[0:42:16] IP: Let's see. Continued conversation about the utility of sustainable aviation fuel, and
its realistic promise to reduce emissions, or just kind of exist as the case may be. There were
some interesting comments this week from two folks at Boeing. The first was Boeing's CEO,
and Boeing's CEO basically said, “Yes, SAF’s going to be expensive.” It's never going to be the
cost. Jet fuel will always be cheaper. Fossil fuel will always be cheaper. That's just how things
are going to be.
Then on the other side of that, Boeing's Chief Sustainability Officer is saying that SAF is what's
going to help us through to the other side. We're going to need SAF to make it through, and
that's what we're betting on to expand the availability of SAF, and we're going to keep pushing
this, because we need to drastically scale up production of SAF in order to make it viable.
Before we started recording, Jason, your comment to me was basically, “Well, duh.”
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[0:43:29] JR: I do remember saying that. Yeah.
[0:43:33] IP: I think it's worth calling attention to the fact that it's where you have the CEO of the
duopoly of large aircraft manufacturers saying, “This is going to be expensive.” Their Chief
Sustainability Officers are going, “Well, we can scale up and we can do this and we can do
that.” I think that we're starting to get to the point. The article in the Financial Times that quotes
Boeing CEO also quotes Willie Walsh, who is the former CEO of British Airways, and who now
runs IATA. He says that, “We can do the SAF thing.” Meaning it's achievable to have enough
SAF to help transition to zero carbon emissions, but it's going to cost more.
I think that the industry willing to say that it is going to cost more to fly is an important inflection
point that I haven't really seen people who sell tickets say all that much. People who crunch the
numbers, people who look at where the industry is headed, people who analyze these things
from an outside perspective have said that multiple times. This is really, to me, the wide
adoption of the line of it's going to cost more. It's always been true. But now people who sell
tickets are saying that.
[0:45:00] JR: I think they're saying that, because it's an inevitable reality at this point. We have
hit peak efficiency, I would say, of using fossil fuels in aviation. There are precious few things
you can do to eke out anything to be “greener” with that. Interestingly, just today at the Future
Traveler Experience Conference in Dublin today, Seth Miller, who has been on the show before,
summarized a few of the points that were being set on stage about this. One of them came from
Sir Tim Clark of Emirates, who has been quite outspoken, I think in this regard, when he quoted
saying here, “We'll still have fossil fuels at the turn of century, but perhaps only 15% to 20% of
the demand, but not 100%.” I think that's probably accurate.
Weeding out fossil fuels a 100% is probably just not going to happen within our lifetime. There
were also a few other bits of interesting things I wanted to pull out from. What Seth was able to
summarize there with Tim Clark again, saying, on the hydrogen-powered A380 demonstrator
that Airbus will be doing in the very near future on hydrogen, he says, “We're not there yet. Let's
be honest, if you're going to power an A380 with hydrogen, the fuselage would have to be four
times the size it is today to contain the hydrogen.” Yeah, he's probably not wrong on that regard.
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He also goes on to say that it was a lot easier to clean up aviation's act 15 years ago, when
there were a lot of easy big wins to make to be less wasteful. Incrementally, it's going to be
much more difficult to eke out additional wins and become incrementally greener. It's going to
get more expensive, that the further you go to becoming greener at eliminating fossil fuels and
converting to hydrogen, or electric, or unducted fans or whatever, it's going to cost a lot more
money. Somebody has to pay for that. It sure seems in this reality, it's not going to be the
shareholders paying for that. It's going to be you and me in the form of a basic economy ticket.
[0:47:07] IP: Yay. I think that's where we are. Let's move to some quick notes that have
happened over the past week. Air Algerie has firmed up its order for eight 737-9s. Those
deliveries will begin in 2027. Scoot has chosen the E190-E2. It will take nine of those with
deliveries between 2024 and 2025. Building a big fleet quickly. Then we have WestJet, which
we talked about last week, they could be on strike by the time the podcast came out last week.
Well, by the time the podcast came out last week, they weren't on strike. They had reached an
agreement. This week, American and its pilots reached an agreement in principle, subject to
ratification by the larger pilots union membership.
[0:47:57] JR: Hey, that's great. Everyone's agreeing on everything, whether it's pilot contracts,
or contracts for aircraft and E190-E2s, nine E190-E2s for Scoot is certainly an odd number. Not
an aircraft I ever expected a subsidiary of Singapore Airlines to be operating, but there you have
it.
[0:48:16] IP: Jason, we like to troll the airworthiness directives every once in a while for some
good stuff. A good one came out this week, I think.
[0:48:24] JR: Yeah. I mean, by we looking at the airworthiness directives, I mean, Seth Miller
and his robot army likes to look through some of the filings.
[0:48:32] IP: He likes to look at the robot army, is what I'm saying.
[0:48:34] JR: Yeah, there's an interesting one out. A new AD for both the 737-NG and the MAX,
and I will quote what he said. “An AD prompted by reports of uncommanded escape slide
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deployments in the passenger compartment caused by too much tension in the inflation cable
and the movement of the escape slide assembly in the slide compartment.” Basically, that
means slide goal boom inside plane when you don't want it to. That's bad. But there's an
airworthiness directive to fix it. That's good.
[0:49:06] IP: I'll have to find – There is video. I mean, there are many, many videos of escape
slides inflating, but there's a video out there of an escape slide inflating inside of an aircraft. If I
can track that down –
[0:49:17] JR: Which is neve good.
[0:49:19] IP: No, it's not. If I can track that video down, I will put a link in the show notes. We
close the show with another tender. Last week, we talked about Thai Airways selling all of their
aircraft. This week, we discuss a – I'm not sure if it's unique, but it's certainly rare. Nepal Airlines
is once again trying to sell its 757-200 Combi.
[0:49:43] JR: Whoa, that's a rare breed.
[0:49:45] IP: It is. If anyone's in the market for a 757-200 Combi, you can certainly toss your hat
into the ring for that. I'm pretty sure that if you give them enough money to let you take it away
from Nepal, you could have it.
[0:50:04] JR: Wow. Not even Icelandair, I don't think, ever had a 757 Combi. I don't know if –
[0:50:09] IP: Well, they can have one now.
[0:50:11] JR: They can have one now, but I'm not sure if I've ever seen one. I've been on the
747 Combi. K11 had a bunch of those, but a 75 Combi. Yeah, I want it.
[0:50:20] IP: This is a 33, almost 34-year-old airframe that was delivered new to Nepal Airlines.
[0:50:29] JR: Good for them.
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[0:50:30] IP: There you go.
[0:50:31] JR: That aircraft had a forever home.
[0:50:33] IP: It did. I can only assume that it will be Steve Giordano flying it to wherever it goes
next.
[0:50:39] JR: Oh, that guy. He's been all over recently. If you haven't watched his most recent
cockpit confidential videos, I highly recommend it. The most recent video he posted is 50
minutes long. It is spectacular. As soon as you're done listening to this podcast, which should be
in the next minute or so, go watch it.
[0:50:57] IP: There you go. Have a great Friday while you're doing it and we'll talk to you next
week. This has been episode 217 of AvTalk. I am Ian Petchenik, here, as always with –
[0:51:08] JR: Jason Rabinowitz. Thanks for listening.
[END]
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