AvTalk Episode 279: Boeing chooses its new CEO

AVT 279 Transcript
EPISODE 279
[EPISODE]
[0:00:07] IP: Hello, and welcome to episode 279 of AvTalk. I am Ian Petchenik, here, as always
with –
[0:00:16] JR: Jason Rabinowitz. Here, sometimes, and also, right now with –
[0:00:21] NR: Ned Russell.
[0:00:22] JR: Hi.
[0:00:22] IP: Welcome, Ned.
[0:00:24] JR: We're broadcasting – well not broadcasting. We're podcasting here from Ned's
wonderfully air-conditioned DC house.
[0:00:32] NR: This is right, and we have a special guest of Heathrow. She is sleeping at our
feet.
[0:00:38] JR: Heathrow is a dog, by the way.
[0:00:39] NR: Yes, a dog. Sorry.
[0:00:41] IP: It's important qualification.
[0:00:42] JR: It is important information, if you're not familiar with Ned's dog. But I am on the
road, passing through DC on my way to Virginia and I thought, who better to spend four hours
between things I need to do for work, than with Ned, on the day we record podcast?
[0:00:59] NR: I helped Jason ride the Metro from DCA for the first time ever, which he was quite
impressed by.
© 2024 AvTalk 1
AVT 279 Transcript
[0:01:03] JR: That's true. When I go to DC, I almost always take the train, if I can. Amtrak's not
been doing so hot this summer, because it's too hot for Amtrak. For only the third time ever, the
second time this summer actually, I flew on the old shuttle route from LaGuardia to DCA. It was
fine. LaGuardia was a bit of a mess. There was some oil spill on the ramps, or inbound aircraft
was late, and then a flight to Miami was two hours late, because of course, it was, so things
were chaotic. But my upgrade cleared, which I didn't expect, because I don't even have status
on American. We pulled into the gate at DCA only eight minutes late, which is practically early
these days. Then I was on the train less than 10 minutes, from off the plane onto the train in less
than 10 minutes. I now understand why people like DCA so much.
[0:01:55] NR: DCA is a great airport. That’s all that’s there.
[0:01:58] JR: It's pretty nice.
[0:01:59] IP: There you go. This is perfect to have you with Ned on this very episode of the
podcast, because the universe was very kind to us today. We had important, huge news come
out before we recorded, which is nearly unheard of.
[0:02:21] JR: Before I even woke up today, I opened my inbox and said, “Oh, wow. Okay. That's
not supposed to hit until 5 p.m.”
[0:02:28] IP: Here's what we're starting with. Boeing has named Robert K. (Kelly) Ortberg, the
former CEO of Rockwell Collins as its new President and CEO. Ortberg will begin the job on the
8th of August. He was a program manager at Rockwell Collins in the late 80s, moved all the way
up to the CEO job in 2013 and was mostly responsible for the company merging with United
Technologies and RTX. Then he retired in 2021. He's currently 64, so he had to get a waiver
from the Boeing board of directors for their mandatory retirement age. It seems that they were
placing a strong emphasis on someone with long-term leadership experience in the aviation and
aerospace business. That was a very short list. Ortberg's contention for the post was first
reported late last week by Jon Ostrower at The Air Current and picked up from there. This
morning, that seems to be confirmed. Well, time to get to work.
© 2024 AvTalk 2
AVT 279 Transcript
[0:03:42] NR: Yeah. I mean, he's not going to be lacking for things that do the minute he starts.
I was reading about. He's got quite the laundry list from rebuilding Boeing's reputation to
integrating Spirit AeroSystems, and getting a 777X, 737X 7 and 10 certified. There's a lot that
he's going to be dealing with on day one.
[0:04:01] JR: On top of guiding the future of the company. It can't just all be fixed the problems
of the past. This new CEO also needs to be something of a visionary to figure out what Boeing
is going to do next, because the answer can't always be, “We're too busy fixing the crap from
the past, we can't think about the future.” It is long past due for Boeing to think about the future.
I don't know all that much about Ortberg. But from what I've read up today, it seems like a good
choice. A competent person to lead the company in the right direction. I'm very pleased that they
did not pick some names, or thrown out in the not-too-distant past, even though there was a bit
of defense that the current CEO of Spirit AeroSystems came from Boeing. I just thought that
was, despite his qualifications, and he was called the fix it guy in the past, or whatever, it just felt
too incestuous to me that you needed someone fresh to Boeing, a fresh pair of eyes, someone
who's technical, familiar with the industry, but not so familiar that they'll get bogged down in the
old ways of Boeing. I think this is really a good choice. Good thing they got that waiver.
[0:05:07] NR: I second you, Jason. I really am glad as Boeing picks someone outside the
company. Again, I don't know much about Ortberg, but it seems, like you said someone who
knows the aerospace industry, but isn't bogged down in Boeing's past issues and everything.
[0:05:20] JR: Yeah. I didn't expect to just say like, “Yeah, this is a good choice. Let's move on.
Here we are.”
[0:05:25] IP: It does seem like a good choice. I think he's very familiar with Boeing, because he
was one of Boeing's largest suppliers for many years.
[0:05:34] JR: That's important, because it's going to give him unique experience in –
[0:05:38] IP: Exactly.
© 2024 AvTalk 3
AVT 279 Transcript
[0:05:38] JR: - having dealt with Boeing from the outside, which by all accounts is an absolutely
miserable, awful, unprofitable experience. He might be the right person to right that ship. Maybe
companies will actually want to do business with Boeing in the future.
[0:05:54] IP: I think it's worth noting where he's going to be righting that ship from. As part of the
announcement, and as part of his message to the company, he's going to be based in Seattle.
[0:06:08] JR: Wow. I don't want to clap, because I'll peak the microphone here, but I’m giving –
[0:06:12] IP: Yeah, don’t clap. But just pretend. Just pretend.
[0:06:14] JR: A virtual clap here. A golf clap, a little golf clap. That is the exact right.
[0:06:18] IP: There you go.
[0:06:18] JR: I'm glad they were able to find someone who would not be just okay working out
of Virginia here down the road from Ned's house, as much as he would enjoy that. Or back in
Chicago. Seattle is the exact right place, and I'm hoping he's going to drag a bunch of other
executives out there with him.
[0:06:35] IP: I mean, it's entirely possible that they move the headquarters back.
[0:06:38] NR: Yeah. That’s a good question.
[0:06:40] JR: Do you think they're going to do that? Do you think they'll officially drag the
headquarters that they just moved to Virginia all the way back to –
[0:06:46] IP: Sure. Why not?
[0:06:47] JR: Okay. Do it.
[0:06:49] IP: I mean, why not?
© 2024 AvTalk 4
AVT 279 Transcript
[0:06:49] NR: A lot of exact million economic incentives at Virginia, but considering Boeing's
revenue line, you can afford that.
[0:06:55] JR: Yes.
[0:06:57] IP: Let's leave Ortberg to get started and say that we think that this is a good choice,
and we'll see where that goes from here. Let's also touch on Boeing's second quarter earnings,
which were reported today as well, which were roughly awful, I think is the financial term. Ned,
you're much more of a financial journalist than Jason or I, but awful is generally how you would
describe this. Am I wrong?
[0:07:25] NR: I mean, they're bad. Yes. But I don't have the numbers in front of me, and I'm
sorry, but 700, net, 393 million loss and billions of dollars in revenue, they're not terrible. They're
not great, but they're not terrible.
[0:07:39] IP: They are making money. They're just also losing a lot of it. I mean, because we
usually touch on the commercial stuff, we'll say, as far as the Boeing commercial airplanes
division, 715-million-dollar loss in the second quarter, which is almost twice what they lost in the
same period last year.
[0:07:57] NR: Well, I'm going to say, that's not going to turn around, Ian. And so, they're
delivering planes as they promised to. They've got to get their production in line before their
commercial business turns back around. That's for sure.
[0:08:07] IP: Yeah. Their second quarter revenue dropped a third to 6 billion in the commercial
division. To Ned's point, the delivery rate is still well below where Boeing wants it and where
Boeing needs it to be. Only 92 deliveries in the second quarter. That's a third lower than the 136
aircraft it delivered in the same period last year. The 737 program is still inching up to that rate
of 38 per month. That's the, I guess, FAA mandated cap at this point, but they're still well below
that. The 787 program is trying to get back to five per month by the end of the year. Jason, I
know this has been your pet project, but it's not part of the commercial division, so we'll
separate this out and discuss the new Air Force One contract for just a second.
© 2024 AvTalk 5
AVT 279 Transcript
[0:09:00] JR: Yeah. It's not going well, is it?
[0:09:03] IP: It has never gone well.
[0:09:04] JR: It has never gone well.
[0:09:05] IP: It has never gone well.
[0:09:06] JR: Everyone knew this was a terrible deal for Boeing, a fantastic deal that Trump put
together. For some reason, Boeing leadership at the time went with, where they set a hard cap
of, I think, it was 4 billion dollars and said, anything above that, Boeing's on the hook. That on
the hook now is 2 billion and counting. Those aircraft that were supposed to be ready for
delivery by the end of this year are now pushed back to 2027, or 2028. Maybe not even for
whoever is elected president in the next election cycle. Maybe their replacement. I don't know.
That's crazy.
Whoever came up with the idea of taking two already built aircraft and retrofitting them to
become the new Air Force One thing, it would be cheaper and faster, they were wrong. They
were very, very wrong.
[0:09:55] IP: Exactly. I would love to see the breakeven point for what it would have been if they
had just restarted the 747 line. Basically, built two one-offs, just one after the other done and
close it back up again.
[0:10:10] JR: Yeah. A lot of the issues seem to not even stem with the competency of building
an aircraft. It's about Boeing not being able to retain and get employees clearance to work on
the 747, that they just can't get the qualified people and then get those qualified people security
clearances to work on that very, very special aircraft, which is apparently, a lot harder in this
post-COVID world than they anticipated. Yeah. Weird, right?
[0:10:39] IP: Well, good luck to them, and yikes. Boeing also discussed the certification of the
737 MAX 7 and MAX 10, still citing for the first half of 2025 on both of those. They have a
design in and ready for the anti-ice fix on the cowling of the LEAP-1B engines. That is looking to
© 2024 AvTalk 6
AVT 279 Transcript
get signed off and then installed on the aircraft. Tested, and then, hopefully, eventually, both of
those aircraft will be certified. Then, this wasn't part of the earnings, but worth noting again in
the past week or so, 737 MAX deliveries have restarted to China after having stopped for a little
while, after having restarted, after having been stopped for a very long time. It's a stutter step to
get 737 MAX aircraft delivered to China.
[0:11:36] JR: On the other side of the coin, our friend, Seth Miller has pointed out that there's a
new airworthiness directive for 787s for all types of 787s, the 8, 9, and 10. It goes on to say,
prompted by a report that during manufacture of drag brace lower lock link assemblies for the
main landing gear, a certain required inspection was not performed. This is where it gets
interesting. Investigation determined that the quality escape, there's that term, in quality escape,
was caused by human error and has been isolated to a single technician. Undetected cracks
could lead to fracture of the drag brace lower link assembly. This condition, if not addressed,
could lead to main landing gear collapse, which is not something you want, but I find it very
interesting that they have apparently isolated this issue down to one particular person not doing
their job properly. Now, Boeing’s going to have to go back and I guess, fix a lot of aircraft, unless
they want the main landing gear to collapse, which is not something you want.
[0:12:39] NR: No. Not at all.
[0:12:40] IP: Let's get those inspected.
[0:12:42] JR: Yeah, very interesting. They pointed out that Gary over there on the inspection
line wasn't doing his job. Not great.
[0:12:49] IP: I mean, I guess, good that they were able to figure out what happened.
[0:12:53] JR: Yeah.
[0:12:54] NR: Yeah.
[0:12:56] IP: Well, Boeing's problems seem on the mend. But that doesn't mean that the people
in charge of oversight of both Boeing's activities and the FAA's are satisfied. Senator Maria
© 2024 AvTalk 7
AVT 279 Transcript
Cantwell, who's the chair of the Senate Committee on Commerce, Science and Transportation,
sent a letter this week to FAA Administrator, Michael Whitaker, requesting that the FAA conduct
a “root cause analysis,” to see if any of its own oversight issues led to the issues that Boeing
has experienced. Basically, asking FAA, “Hey, maybe some of this is your fault. What are the
core problems that may have led to, well, all of this?” An interesting continued push by Cantwell,
who's been obviously at the forefront of dealing with the fallout from Boeing, as well as the
FAA's lax oversight of Boeing. Cantwell, I think as should be noticed, she represents
Washington, the state. Her district is in Washington state, and so, is close to Boeing.
[0:14:14] NR: Yeah. I mean, I think it's a legitimate issue for Cantwell to raise. The truth is, as
we know, that the FAA was lax when they certified the MAX, probably a little too close to Boeing.
Certified the MAX originally. Then, of course, we had the tragedies that occurred in 2018 and
2019. I think it's well placed, because we've continue to see these quality issues.
[0:14:34] JR: Quality escape, Ned.
[0:14:37] NR: Issues from Boeing on the MAX and the 787. I'd say, it never would hurt to do a
root cause analysis, both the FAA and Boeing on this, just because it's certainly a concern.
[0:14:47] JR: Yeah. I'm surprised it took this long for someone to ask for something like this.
Hey, maybe we let the inmates run the asylum a little too long, only to figure out like, what were
the impacts of that and how long has this been going on, and what may have the FAA missed,
because it was so cozy with Boeing? I'm actually really surprised this hasn't happened in the
past. But this is good. This is long overdue. He'll be very interested to see what this returns.
Apparently, they want this done very quickly, because the letter says, given the urgency of
addressing these issues, please provide a response by August 12th. That's less than two
business weeks from now. That's a pretty quick turnaround, but it's a good ask.
[0:15:28] IP: Yeah. We'll see how they respond. I think that'll be telling how the FAA responds.
Let's completely shift gears and talk about the business of aviation. We're going to start with the
ultra-low-cost carrier, which doesn't exist anymore, at least in the US.
© 2024 AvTalk 8
AVT 279 Transcript
[0:15:47] JR: This is the new low-cost carrier segment of the podcast, because we were talking
about one, two, three, four different low-cost airlines, all doing pretty radical things, all
somewhat expected, but I don't think what we're seeing was this expected. I think maybe we
should start – let’s start with Spirit, perhaps. What do you think?
[0:16:09] IP: All right. I am ready to catch the spirit.
[0:16:12] JR: With Spirit Airlines.
[0:16:13] IP: Yes, absolutely. I still think they should bring that – They would have no financial
problems if they brought that tagline back. I’m just saying.
[0:16:20] JR: That's true. It was a totally different beast back then. No, wait. That's Frontier.
Sorry.
[0:16:24] NR: Yeah. Okay.
[0:16:26] JR: Yeah. Okay.
[0:16:26] IP: All right. All right.
[0:16:27] JR: Well, I mean, that's a good transition now that Spirit is doing the things that
airlines love doing so well and following the leader. A couple weeks ago, Frontier announced
some –
[0:16:38] NR: In May.
[0:16:38] JR: In May. Yeah, okay. It wasn't even the last month. It was the month before. That's
some pretty big overhaul to its entire business model. The newfound question for all airlines to
cater to the more premium segment of the industry, because apparently, the low-cost carriers
cannot make money anymore. It's not a thing. Spirit has gone up market a little bit. They've very
suddenly, that they cut all of their ancillary fees, which they loved so much and passengers
hated so much. No more change fees. No more cancellation fees for most passengers. The first
© 2024 AvTalk 9
AVT 279 Transcript
few rows of the aircraft will be Europe style, where the middle seat is blocked. That's an
interesting change.
Spirit today, again, following Frontier, announced a major overhaul to its entire business model,
much in the same vein of what Frontier is doing. Gone is just the bivy-base fare at Spirit and
then add on all of the different menu items, like a bag and seat and food and drink and Wi-Fi
and check in, and the big front seat. You could still do that. Now, they also have three, let's call
them bundles above that. The bottom is called Go. It gets you on the airplane and nothing more
than that. Go savvy gets you either. This is interesting, a checked bag or a carry-on bag, but not
both. I would always go with the carry-on bag, because Spirit traditionally charged a lot more for
carry-on bags.
[0:18:04] NR: Checking you don't have young children yet.
[0:18:06] JR: I don't. I will cram everything into that check bag. I will [inaudible 0:18:10]. Never
check the bag. But it also includes a standard seat, which on Spirit could go anywhere from nine
to, I don't know, 15 bucks onboard. Then above that, they have a tier called Go Comfy, which
adds both the carry-on bag and the check bag and free small snack and drink and priority
boarding, but also, interestingly, the same blocked middle seat, premium seating section, which
is really odd and interesting, because they'll be keeping around the big front seats. Another golf
clap for Spirit for not – There you go. Thank you, Ned, for not removing the big front seat. That
will be on a tier called Go Big, which basically comes with everything.
[0:18:51] IP: Everything.
[0:18:52] JR: Everything. A personal bag, carry-on item check bag, big front seat, premium
snacks and drinks included, priority boarding, priority check in at select airports, and even free
streaming Wi-Fi. In this case, Spirit –
[0:19:05] IP: That's a domestic first-class product.
[0:19:07] JR: It is. It is basically –
© 2024 AvTalk 10
AVT 279 Transcript
[0:19:09] IP: That’s straight up.
[0:19:11] NR: It lines up domestic Christmas products with the Wi-Fi, because, I mean, except
for Delta. Yeah.
[0:19:16] JR: It is now bringing to the table a premium product that is more premium, arguably,
than most of JetBlue's fleet. JetBlue does not yet have a junior mint program, like they may
have next year.
[0:19:30] IP: Soon maybe.
[0:19:31] JR: We’ll cover that one day. This now puts Spirit in direct competition, at least
product-wise, in-flight product-wise with the mainline carriers. Because if you're flying from New
York to Chicago, or New York to DC, you're not really getting anything in first class anyway.
There's no meal on this flight. I was on an American E175. I got upgraded today and it was just
a regular snack basket with Biscoff, and some other random cookies and stuff. It's fine. But
Spirit can do that too. The only difference is the seat is, “pre-reclined.” but it's fine. I didn't recline
my seat.
Well, the seat reclined itself when we went to take off, because it's old and it reclined itself when
takeoff. It was very odd. Southwest, coming out of the JetBlue failed mergers, is doing what it
thinks it needs to do to survive. Surviving right now requires a premium product, and that’s what
Spirit already has. They just needed to rearrange how they sell it. I'm really interested to see if
passengers are willing to accept a premium experience on Spirit, because they did so much
brand damage to themselves over the past decade that it might be unrecoverable at this point,
but they're going to try.
[0:20:47] NR: Yeah. I have a lot of questions with Spirit’s program. I spoke to a number of
experts about this the other day. The fair bundles, as Brett Snyder told me, it makes it easier for
passengers to buy seats on Spirit. Yes, absolutely. The question is, how much, like Jason said, I
mean, their brand is budget, super budget, everything extra. How much are people going to be
willing to buy up to these? The truth is, is I see a lot of complexity being added to Spirit. Now,
looking at these things, so the flight attendant's going to have to know, I mean, people sitting in
© 2024 AvTalk 11
AVT 279 Transcript
the big front seat, that's easy enough to know they get their snacks and drinks, but go comfy
people. Are you going to permanently block middle seats in a certain area, or is it just –
[0:21:28] JR: Well, if you scroll down on the page you have loaded, you'll see that they have a
mockup of seats that have a different colored seat in the middle, like a gray seat and black.
Presumably, yeah, there are going to be at least some rows of the aircraft that are physically
differentiated. This will be the 15th time in the last couple of years that Spirit has done something
different with its seats.
[0:21:49] NR: I mean, we’re in Detroit looking at new seats, so the eve of the pandemic in
December, 2019, Jason. I see this adding complexity to an airline that's already struggling with
costs. Now, if they can get people to buy up and buy those extra products and pay more, then
they can offset that added complexity and cost. But that's not the traditional Spirit customer, so
I'm curious. Question is, will people buy into this?
[0:22:13] JR: I hope so. I am the non-traditional Spirit customer, every single time I hop on
Spirit, which is a good number. I have fun with the big front seat. Also, every one of those times
has been either a day of upgrade, or one of the plus grade options, because those seats tend to
not get filled and they go for the lowest bid. I shouldn't be saying that on the podcast, because
then people will say – but they take anything. If there is a seat open, they will take your $5 for
that big front seat. Presumably, if they bring that offer up into the beginning of shopping, rather
than later on the seat map, they'll entice more people and maybe they'll fill those seats.
I don't think you're going to get the upsell like Delta, or American, United do, where they are
charging hundreds of dollars, typically, added for first class, where a Spirit, I'd imagine will be
lower and maybe there are more people willing to buy up to that. I'd imagine that's the thinking.
[0:23:08] NR: The other question I have is with the second from the top tier. What was it? The
Go –
[0:23:12] JR: Go Comfy.
© 2024 AvTalk 12
AVT 279 Transcript
[0:23:13] NR: Go Comfy. Are charging enough for that to offset the revenue loss, or not filling
those middle seats? It seems very weird they're going to have two premium products. Not one,
but two on their planes, because they're going to have the big front seats that now go big and
they're going to have the Go Comfy. Whatever they’re charging for Go Comfy needs to offset
whatever they're losing from not selling however many middle seats that covers.
[0:23:36] JR: I guess, the benefit with Go Comfy is if they decide the middle seat's not working,
they could just stop doing that.
[0:23:41] NR: This is true. That is the great thing about retrofitting a plane, those seats can be
sold at a moment's notice.
[0:23:46] JR: Sure, they'll be gray, but who cares? You'll have someone in them. You won’t
even –
[0:23:50] IP: Yeah, you won't see it. It doesn't matter. I mean, the marketing copy here is
obviously, go big, or go home. That's the upgrade marketing copy. Spirit, you're welcome.
[0:23:59] JR: Go big and go home, Ian. Well, they can go home.
[0:24:03] IP: There you go.
[0:24:03] NR: Well, it’s there. They want you to buy up, Ian. They want to spend more money
on Spirit and buy up. That's what they want.
[0:24:09] JR: You know who else wants you to spend more money, Ian?
[0:24:12] IP: Well, everyone.
[0:24:14] JR: Everyone.
[0:24:15] IP: Everyone wants me to spend more money.
© 2024 AvTalk 13
AVT 279 Transcript
[0:24:16] JR: I'm thinking an airline called Southwest. People are pretty –
[0:24:19] IP: Southwest.
[0:24:20] JR: - pretty pissed off about this, I think. Most people are not – Although, their metrics
will say that 83% of our passengers want to sign seats on Southwest. The general vibes on
social media are Southwest is dead. Long live Southwest. This is not the Southwest we grew up
with. Not me personally. I don't care about Southwest to New York. They're a non-figure for me.
But Southwest is the next LCC that announced a major, major, major change to its business
model, the biggest change in 50 years, probably because that activist investor came onboard
and scared the crap out of management there.
Notably, they're not wrong that they said, “Hey, if you know for a while now that all of your
customers are demanding these changes to your product and you haven't done them, you're
doing something wrong.” It's really hard to fault that logic, honestly, when you think about it.
Southwest will start doing extra legroom seating. A third of the plane will be extra legroom. They
will also be doing a sign seating for the first time, I believe in the airline's history. They will not be
bringing club seating back. Sorry, Ian. I know you are –
[0:25:28] IP: Oh.
[0:25:30] JR: But it's a big change. We don't know exactly when this will happen, or how it will
work, or any of the mechanics of it, but they've just announced that, “We're going to do this,
because at this point, we don't have a choice.”
[0:25:40] NR: No, they don't. Like you said, I spoke to a number of frequent Southwest travelers
for a story I was working on the Washington Post and everyone wasn't happy with it. Now, there
are people that probably don't care. Of course, there are people that don’t care. We know.
People fly all the time. I don't know. There's a lot of people that really like the open seating
model, even if it wasn't my preferred way to go.
[0:26:01] JR: Probably, because if you fly Southwest enough, you know all the secrets. You
know all the tips and tricks to get you in the A, or forbid the B section. It's passed the infrequent
© 2024 AvTalk 14
AVT 279 Transcript
passengers who are booking whatever's cheapest, buy once a year, who end up, is there a D
section? Or just C?
[0:26:16] NR: No. It’s A, B, C. Yeah.
[0:26:17] JR: Those are the ones that this is going to benefit, but yeah, the loyalist Southwest
passengers, they have nothing to gain from. This is all a negative for them.
[0:26:26] NR: Except, spend more on Southwest, because that's what Southwest wants them to
do ultimately.
[0:26:29] JR: That's what Elliot Investment Group, or whatever wants them to do. I don't think
Southwest wants to do this, but it's a long time coming in. For people like me, yeah, this is a
positive change. I might fly Southwest if they ever made a legitimate play in the New York
market. Yeah, I don't like their current boarding thing. I don't know.
[0:26:48] NR: The one thing that strikes me with the changes and like, why they aren't adding
bag fees. Now I know they've had the whole bag –
[0:26:54] JR: They haven't said they're not.
[0:26:55] NR: This is true.
[0:26:55] JR: They haven't said that.
[0:26:57] NR: It seems like low-hanging fruit. Every other US airline charges bag fees. With all
the credit card deals and stuff out there, it's pretty common that you can get a free bag on
whatever airline you fly regularly, whether you're a frequent flyer or not. It seems like that would
be low-hanging fruit. Have check bag fee, offer a free bag through the credit card, something
like that. Yeah, like you said, they haven't said they not.
[0:27:18] JR: Once you do that, though, I think the brand is truly and well dead at that point.
Bags fly free is their whole thing. Even if they were to move just to one bag free, that would
© 2024 AvTalk 15
AVT 279 Transcript
probably also kill the brand for most people. Because that's a big win for traveling public.
Friends I know that bring their entire family down to Disney, or whatever, they've got to, like you
said, they have kids that have bags.
[0:27:41] NR: I pay for bags now.
[0:27:42] JR: That adds a lot of costs. Suddenly, Southwest is already not a great deal a lot of
the time. That makes it a bad deal in a way.
[0:27:50] IP: Well, that's the thing that I want to talk about here is that we're talking about
Southwest in the context of a low-cost carrier. It hasn't been a low-cost carrier for quite some
time. It certainly hasn't been a low-fare carrier for quite some time either. My mother-in-law is
the perfect example of a former Southwest loyalist. She has family in Florida. Between that and
going on vacation, would fly Southwest to Florida multiple times a year and never batted an eye
at booking Southwest. Didn't even think that there were other airlines available.
Just was, “I’m booking Southwest, because I get my free check bags and things like that.” Then
a couple years ago, I was like, “Well, why don't we look at some other pricing?” United with
paying for bags was still cheaper and had better timing. That blew her mind. Thought like, “Wait
a minute.”
[0:28:41] JR: She was like one of those people from really dating us now from the movie, Close
Encounters with the Third Kind, where they're all walking out of the shipping like, “Where were
we? What just happened?”
[0:28:51] IP: Yeah.
[0:28:51] JR: You don’t know what hit you. Like that. That's the traditional Southwest passenger
that they've guarded so hard. But then, they've also very recently made their flights and crucially
pricing information available on Google flights. I hear that will be coming to more online travel
agencies in the very near future. Now, if you're shopping for a flight, you'll not just see that
Southwest is an option. You'll see that it's more often than not, not a very good option, price-
wise.
© 2024 AvTalk 16
AVT 279 Transcript
[0:29:18] IP: It'll be interesting to see whether or not these changes can bring some of the
people over who were flying. Southwest says, the research is clear that 80% of Southwest
customers and 86% of potential customers prefer an assign seat. If that's the only difference, do
people move back to Southwest? Maybe. I don't know. I would love to see what research they
did. Like, how was that research conducted?
[0:29:46] NR: Well, something about research numbers like that and they come to press
release and said, I'm always like, you can ask the question a certain way to skew the answer to
the way you want it. Yeah. Yes, I'm very curious to read it.
[0:29:58] IP: Would you prefer to be chucked in the cargo hold by your belt? Or would you like
an assigned seat in the cabin?
[0:30:04] JR: Leading question.
[0:30:06] IP: Yeah. We should also note that Southwest is going to begin red-eye flights for the
first time.
[0:30:11] JR: Oh, that’s right. Landing on Valentine's Day.
[0:30:16] IP: Love is in the air, Jason. It's going to be in the air overnight.
[0:30:20] JR: I think, not only are there red-eye flights, but of course, they're transcon flights,
which is also a thing that Southwest before, they did not do up until very recently. I think some of
them are [inaudible 0:30:31]. I mean, there are some transcons in there. I think there's –
[0:30:33] NR: There’s LAX Baltimore.
[0:30:34] JR: Yeah, that’s as transcon as it gets.
[0:30:36] IP: There's one that's truly transcon. There are five routes that begin on Valentine's
Day of 2025, and then it'll expand from there. Las Vegas to Baltimore, Las Vegas to Orlando, LA
© 2024 AvTalk 17
AVT 279 Transcript
to Baltimore, LA to Nashville, and then Phoenix to Baltimore. One truly transcon, and then the
others are also quite long.
[0:30:55] JR: Yes. Speaking of routes, there's another low-cost carrier that just really needs to
reinvent itself. It has now started doing that in the form of, what did JetBlue call its overhaul
thing?
[0:31:08] NR: Jet Forward.
[0:31:09] JR: Jet forward. That's right. Not backwards, not up, not down, not side to side. Jet
Forward. I hope there's some people out there who got that reference. I mean, the Democratic
nominee for president gets that reference. We'll see if anyone here does. JetBlue is coming out
of the, again, going back to the dead Spirit merger, doing anything it can do to stop the bleeding
and make some money. To do that, it is cutting the most routes, I think any airline has cut at
once since the Great Recession, I think. You said that.
[0:31:43] NR: I did. Yeah. It's the largest pullback of any airline network-wise since the Great
Recession. 15 cities have been cut already. 50-plus routes are gone, and they say more
coming. Though, they did say on their call yesterday that the biggest ones are out of the way.
It's not going to be as big as it's going. Yeah, JetBlue is shrinking to profitability, almost. Adding
new points, like Manchester, New Hampshire, and their drive to be more useful in New England,
I don't know.
[0:32:10] JR: That's something. But yeah, these aren't just little tertiary cities that JetBlue is
pulling out of. It's Charlotte, Minneapolis, San Antonio, Burbank, Tallahassee, which they just
started earlier this year, Palm Springs. These are major destinations.
[0:32:28] IP: We previewed the cuts last week, and I don't think there were any huge additions
to that list. One of the things that we did find out in their earnings call was that they're also going
to shrink the number – well, not shrink the number, but not have as many aircraft as they said
they were going to join the fleet. That one is very interesting to me.
© 2024 AvTalk 18
AVT 279 Transcript
[0:32:49] JR: That was just a way of telling me, I don't remember what we talked about last
week.
[0:32:53] IP: Correct. Yes.
[0:32:54] JR: That's correct. Yes, we did learn today that JetBlue is refocusing its fleet's
development pretty much solely on the A220 at this point. It is deferring all future A321neo
delivery, including precious, precious XLR deliveries to 2030 and beyond.
[0:33:14] IP: I'm sure Airbus is not upset about that, because they can go –
[0:33:17] JR: I’m sure United is pretty happy about this. This was an interesting question,
someone posed to me earlier this week. What is the mechanism for those slots? Does JetBlue
get to basically, sell them, or do they just return to Airbus? Do other airlines that were further
back in the line accelerate? Which I don't think is the case. But I think they really just – they go
back to Airbus and Airbus is free to do what they want with them, I think, right?
[0:33:40] NR: I think that's how it works. Other airlines come up to Airbus, or Airbus is like, well,
we know that you wanted to get planes earlier.
[0:33:47] IP: I'm sure Airbus shops them around.
[0:33:49] NR: It’s in these. I wanted to add to the deferrals that Ursula Hurley, the CFO of
JetBlue, had made a very stinging comment about the Pratt engine issues when she talked
about those A320neo deferrals. She said, “At this stage, we just can't afford to take delivery of
costly new aircraft that may need to be parked due to engine issues.” I mean, boom. That's why.
They've got all these neos already on the ground. 11 now. Expect high teens next year. They're
like, “We need to focus on what we're going to fly.” That said, the A220 –
[0:34:22] JR: They're not immune from that.
[0:34:23] NR: No, the A220 is not. The A220 has an AD that caps the number of cycles that can
be done on the engines. I was talking a bunch of people at IATA in June, and they're saying,
© 2024 AvTalk 19
AVT 279 Transcript
“Yeah, we're flying the plane less purposely to save cycles.” It's not a good spot, but they're
definitely leaning into that 220. We should say, that also will help them replace the E190 next
year, which I think is a big part of their cost saving program, just to get that efficiency.
[0:34:47] JR: They said, 60% of their E190s, which are primarily based out of Boston at this
point, are already gone. If you're a fan of the E190, it's going to be harder and harder to get
onboard one of those these days. I think your only option in North America is Aeromexico, I
think, still has them?
[0:35:02] NR: Yeah. Aeromexico still.
[0:35:04] JR: I don't even think Copa has them anymore?
[0:35:06] NR: Well, Breeze, but they're shifting the 190s over their turn.
[0:35:08] JR: Yeah. I think those are gone from commercial operations, or they will be soon.
Yeah, get yourself down to Mexico City if you're an E190 fan. That's about it.
[0:35:16] IP: All right. I didn't know we were doing the E190. I got thrown off.
[0:35:20] JR: It's a wonderful unplanned.
[0:35:22] IP: It is. That takes us out of the US. Unfortunately, we now head down under to
Australia, where Rex has called it quits on jet flying. This was the Australian regional carrier that
decided it was going to become a low-cost 737 operator and challenge the Qantas Virgin
Australia duopoly and lost.
[0:35:49] NR: I love to see just how much they lost by. I'd love to see those numbers.
[0:35:53] IP: I think you would be crying if you saw those numbers, Ned.
[0:35:55] NR: Probably.
© 2024 AvTalk 20
AVT 279 Transcript
[0:35:56] IP: They have entered fiscal administration. The 737-800 fleet is done flying. But
especially worth noting that the regional turboprop flying with their South 340s remains
completely unaffected. That's a separate side of the business and that continues a pace.
[0:36:15] NR: They serve a lot of cities in rural Australia that don't have air service otherwise.
That's important that the turboprops are still flying.
[0:36:23] IP: Oh, absolutely. That would be one of those things where this is unfortunate,
absolutely. But losing the EAS, basically, of Australia would be far worse, I think, in the long run.
[0:36:38] NR: My question with Australia is we keep seeing these airlines trying to get into the
core network carrier market. We saw Rex in 2021 with the Jets. Bonza didn't really do the
Sydney-Melbournes, but did a lot of the points and they both failed this year. What I keep
coming back to is Australia always seemed like two-airline market. It was onset on Qantas in the
90s and then it's conversion in Qantas ever since onset's collapse. We've seen airlines try, but
Tiger Air came in, what was it? Decade ago, before it got bought by Virgin. It continually proves
to be a two-airline market that people keep trying to butt in. I just don't see how the market
evolves to a three-airline market and lumping Jetstar with Qantas, just to be clear.
[0:37:18] IP: I mean, I think it's worth noting that generally, people who start airlines seem to be
a little –
[0:37:27] JR: Optimistic.
[0:37:29] IP: Yeah, sure. That's an extremely nice way.
[0:37:32] JR: Everything Ned just said is exactly the same that could be said for Canada as
well. Very geographically similar. I mean, they couldn't be any more dissimilar, but
geographically, you have huge countries, but with small populations very far geographically
apart from each other, and they just cannot seem to sustain more than two airlines. I mean,
Canada can barely sustain two airlines, let alone having any of the LCCs, or the ULCCs on top
of that.
© 2024 AvTalk 21
AVT 279 Transcript
[0:37:59] NR: Add to that population concentrated in four or five large markets, so they fly all
the same routes and the same cities.
[0:38:06] JR: Yeah. It seems like the unfortunate truth is that both of these countries will just be
duopolies for until something truly disruptive that isn't – we're going to operate 737s for a
massive loss and hope it gets better eventually, because that's proven time after time, it does
not work. Something dramatically different has to come and change that landscape. In the same
region as Australia, we'll move over to Air New Zealand, who says, “Yeah, all of that stuff we
were planning for 2030 for climate targets, yeah, it's not going to happen.”
This week, Air New Zealand said, it has axed its interim climate targets, stating that measures
needed to meet the target were unaffordable and not readily available. This comes to us from,
yet again, Flight Global, because I couldn't actually find any press release issued by Air New
Zealand on this topic. But the article literally says, and I quote, “In a surprise move,” then now
it's July 30th. Yeah, surprise, because I can't even find anything on this.
What I said on Twitter earlier this week, I think is something I want to focus on that, I think Air
New Zealand is the first airline to readily admit all of these climate goals, that all of these airlines
around the world have put in place is completely unachievable. It cannot be achieved with the
progression of technology, the delays to existing technology, and the financial situation at these
airlines. These features combined is just all these climate goals were getting closer and closer.
If anything, progress is inching the other way, as both Airbus and Boeing and Pratt and Whitney
can't deliver anything meaningful at this point, in terms of offsetting climate emissions, to the
point where Air New Zealand just said, “No, it's screwed. We need an entirely new plan,
because what we're working on isn't going to cut it.”
[0:39:56] NR: Yeah. I think about the sustainable aviation fuel side of that. As much as industry
is banking on SAF to significantly cut emissions, there are still huge hurdles to getting SAF
anywhere near commercial production levels. Like you said, I think we're going to see this for
more airlines, just because even with bills that have passed in the US and Europe, these
facilities have to be built, and these don't get built in a year or two. We're easily going to see
delays. It's, yeah. Like you said, Jason, I mean, kudos to Air New Zealand for acknowledging
that. But it's never been easy.
© 2024 AvTalk 22
AVT 279 Transcript
[0:40:32] JR: No. Part of that is Air New Zealand has a lot of Dash 8-300 zipping around the
country, and they had planned some zero emission, very quiet battery, probably battery
powered, hydrogen powered, something aircraft to replace those, but they haven't even gotten
to the point where they can do any trials. They wanted to do that in 2026. That sounds wildly
optimistic at this point. That's a future that doesn't seem to be happening, but it's good to see an
airline come to the realization and publicly say like, “This isn't going to work. Something needs
to change.”
[0:41:06] IP: To Ned's point, this is not something – and we've talked about this, I don't know
how many times, but we've talked about it before, where this is not something the industry can
do by itself. This is not a problem that is going to be solved by the airlines. This is a problem that
is going to be solved by the airlines, and suppliers, and the government getting involved saying,
“This is our energy policy. These are the things that we are going to work on, and these are the
things that we're going to support, and these are the things that we're not going to support.”
Until that happens, I think we're just going to be doing this cycle of, these are all the things we
want to do, and then we delay them, delay them, delay them, and then eventually say, “Okay.
Well, we're past the point where we can do these things. We need a new plan.” Just do that
over and over again.
[0:41:55] JR: Ironically, it seems like, the only thing that's truly moving forward, that's truly going
to possibly happen in the near future, are eVTOL flights. That goes in the opposite direction of
adding flights, and I would argue adding emissions, because these aren't just planned to
replace helicopters. It's planned to dramatically increase the number of point-to-point
connections with these aircraft, and their impacts on that as well. It seems like the only – that’s
the only technology that's actually progressing is adding more flights to the system. At least
they're electric, or whatever powered, but it's not the solution the industry needs.
[0:42:33] NR: Yeah. I mean, when you look at growth, even if you're doing those electric, there's
not direct emissions, but what about the indirect emissions, the things like, getting the batteries
and all of the parts? Yeah, there's a lot of issues there.
© 2024 AvTalk 23
AVT 279 Transcript
[0:42:48] JR: Good insight, Ned. Good insight.
[0:42:51] IP: Speaking of issues, TUI Belgium's E2 fleet is grounded, and it's a Pratt & Whitney
issue, but Jason tells me it's not the Pratt & Whitney issue that we've all come to love.
[0:43:01] JR: That's true. It's the typical story of a new tech aircraft grounded because of Pratt
& Whitney issues, but this time it's different, but it's really the same. TUI Belgium were using the
E195 E2 to exclusively operate flights out of Antwerp Airport, which now has TUI Belgium flights
out of Antwerp, because these are the only aircraft they had for it. Aviation Week reports that
over recent months, GTFs, blah, blah, blah have failed inspections. We know that, but TUI’s E2
appeared to be affected by a different issue, and that’s where my ears perked up.
Industry sources familiar with the situations told Aviation Week that all three of the E2s have
been impacted by oil consumption issues. This grounded TUI’s first E2 in March, and the
second and third aircraft were grounded in quick succession during the week commencing July
22nd. Of course, there's the usual quote of saying, Pratt & Whitney's working closely with the
airline to return the aircraft to service as quickly as possible, blah, blah, blah, blah, blah. But
we've heard rumblings of other Pratt & Whitney aircraft having some oily, weird smell onboard.
Apparently, that's what was happening with these aircraft, and it's a totally different issue, so
yay, more Pratt & Whitney GTF issues. This time, again, taking up an entire segment of an
airline.
[0:44:22] IP: Oh, boy.
[0:44:23] JR: Yeah.
[0:44:23] NR: Oh, boy is right.
[0:44:26] IP: Let's round up with some things that happened last week that are worth
mentioning. A few Farnborough air show orders that happened after we recorded. Actually, a
pretty sizable one.
[0:44:38] JR: Good chunk.
© 2024 AvTalk 24
AVT 279 Transcript
[0:44:38] IP: We'll start with a small one, which is five A350-900s for Abra, and those could end
up at Wamos. We'll see.
[0:44:47] JR: The Airbus announcement specifically went out of its way to say Abra is the
majority shareholder of Avianca and GOL, I believe. But speculation is that this company is also
apparently taking over Wamos Air, which can't operate old 747s and 330s forever, so maybe
these aircraft go there. But I am in the camp of it would be much more exciting if GOL started
long-haul flights of A350s, or if Avianca defected from being a Boeing 787 operator to the A350.
But those seem unlikely, but exciting.
[0:45:18] IP: Unlikely, but exciting is really the underlying –
[0:45:21] JR: Ned’s nodding.
[0:45:22] NR: I like unlikely, but exciting. Yes, that's a good way to put it.
[0:45:24] IP: It's the underlying, where we go for with this podcast. Then there's the big order
from Flynas, which is the Saudi Arabian low-cost carrier, 75. Jason has a typo in the show
notes, but it actually works out, because they will be flying a lot to Neom. 75 A320neos, and
then 15 A3399.
[0:45:49] JR: Well, come on. My laptop traveled. There’s going to be some typos.
[0:45:53] IP: Fair enough, fair enough. 75 A320neos, and 15 A339ers.
[0:45:58] JR: I wonder where that – that is not a typo. It’s, again, where it says, those 15
A330-900 will have up to, I think, more than 400 people onboard, their two-class configuration,
which is up there. That's not the most. I think there are some out there with upwards of 440,
which is MAX config. But 400 people, that's going to be a pretty cramped ride, but that's the
whole point with low-cost, long haul, especially to a place like Saudi Arabia, these are going to
be going out to India and to the Southeast Asia to pretty much bring employees back and forth
© 2024 AvTalk 25
AVT 279 Transcript
from those regions. They don't care about comfort for the most part. They get to care about
getting there and getting there cheap, but that's a lot of passengers, on the A3390-900.
[0:46:43] IP: Yeah. We're breaking Airbus launching a new aircraft. This is breaking news on the
podcast. Yes, and it's the only place you'll hear it. Jason, I like how you noted this one in the
show notes. The Olympics airhole. I think we briefly touched on this last week.
[0:47:00] JR: I'm not sure. I don't think we did.
[0:47:02] IP: Or maybe we didn't. But as part of Paris's plane-free plan for the opening
ceremony, there was an 80 nautical mile circle around the city in place for much of Friday
afternoon and evening, which spread air traffic around that, and Jason's word, airhole, and
halted flights to Paris airports for the time being. We put together a fun little time lapse, and
that’s – well, it's linked to the show notes, and it's on every social media platform you could
possibly imagine. But 2,000 and change was the number of flights affected by this particular
temporary flight restriction. Though, we did get to see some good air-to-air refueling patterns
from the French Air Force A330-MRTTs. That was fun.
[0:47:51] JR: Yeah. I bring this up, because I want to ask listeners, if anyone can recall a
bigger, more impactful, peacetime, non-war zone, no-fly zone like this before. Obviously, after
9-11, there were no flights at all over North America. When is the last time there's been such a
large no-fly zone over a city or a country that's not in some active war, or a conflict of some
sort? This wasn't in the past where we had inaugurations here in DC, where there's a huge no-
fly zone. That's for G8 aircraft, DCA and IID, they weren't impacted. Commercial flights
continued. This shut down Paris's airports, and I presume other commercial airports outside of
Paris as well. Anything within, what did you say? 80 nautical miles? That’s huge.
[0:48:40] IP: Yeah. I mean, the main airports affected were Charles de Gaulle and Orly. But
there were other airports that were affected outside of that.
[0:48:51] JR: Wherever Ryanair flies to Paris.
© 2024 AvTalk 26
AVT 279 Transcript
[0:48:55] IP: Yeah. I mean, Paris is the weird one, because they go right downtown. The crazy
thing to me is that this affected over flights as well. This wasn't just Paris and then up to –
[0:49:09] JR: That's why I called it an airhole.
[0:49:09] IP: - 18,000 feet, or 20,000 feet.
[0:49:12] JR: This wasn't just shutting down an airport, or the airspace around.
[0:49:15] IP: This was everything.
[0:49:17] JR: There was a hole in the map where there were no airplanes, except for the two
airplanes, making sure that there were no other airplanes there.
[0:49:24] IP: Well, yes. And the airplanes that were being refueled by the airplanes that you
could see. The interesting thing here is that as far as events go, I think this is – people were
talking about, well, there's security and everything like that. This, I think, goes beyond security.
This was, we don't want to hear anything that sounds like an airplane during our massive open-
air ceremony.
[0:49:45] JR: It rained on their parade anyway.
[0:49:48] IP: It rained anyway. Because Ned is on the program this week, we're going to close
with news that is, I guess, extremely relevant to Ned. The E175 has been approved for Aspen.
Tell me, what does that mean?
[0:50:04] NR: Aspen has been restricted to only the CRJ-700 for years. That's a short runway,
steep approach. There has been a push to get the 175 certified there, simply because the 700 is
not going to be around for much longer. There was a period that Delta didn't have any 700s
during the pandemic, and they had to stop service to Aspen. Aspen being a very posh and
lucrative ski destination. This is a big deal that they've approved it. It's interesting, and Jason
noticed to me earlier, the community actually has not been entirely onboard with the idea, as
much as the air service development people and the airlines are getting the 175 in there, simply
© 2024 AvTalk 27
AVT 279 Transcript
because the community is, they want to be able to get there, but they don't want anyone else to.
They're that kind of community.
[0:50:50] IP: Of course.
[0:50:51] NR: It's exciting to see. I mean, I think this means we could see more air service to
Aspen in the future. I don't think the airport slot control, though, I know the airport's pretty – the
terminal's pretty tight. But it definitely allows flexibility. The CRJ-700 fleet's dwindling and every
airlines open to 175s. It's good.
[0:51:10] JR: It was really weird seeing local news reporting on this saying like, yeah, the FAA
had to demand that the airport authority stop blocking the E175 from being authorized for
Aspen. I'm like, that's completely contrary to everything that should be happening. Usually,
airport authorities fight tooth and nail and would kill to have airlines wanting to operate bigger
aircraft to their cities. But then, there's Aspen who said, “No, we don't want that.” Okay.
[0:51:40] IP: Fair enough. I said we were going to close with that, but we're not, because I just
remembered, because we're talking about e-jets. LOT is taking delivery of its first E195-E2.
That's good for all sorts of reasons, but there's a little bit of history here is because LOT
operated the first ever commercial flight of an Embraer E-jet 20 years ago, back in 2004. Step
for an airline that has some important history with Embraer's e-jets. Just going to round that out
there.
[0:52:11] JR: It was only 2004 for the first e-jet flight of any sort, huh?
[0:52:16] IP: Yeah. The E170. First commercial flight was in 2004. First deliveries and first
commercial flight.
[0:52:21] JR: Interesting, because I know that JetBlue was the launch operator for the E190. I
feel like, it wasn't too long after 2004. I didn't think that was – maybe just the following year in
2005. I didn't know there was so little time between the little one and the big one at Embraer.
[0:52:36] IP: Back when aircraft could be developed and certified in just a few years.
© 2024 AvTalk 28
AVT 279 Transcript
[0:52:41] JR: Weird.
[0:52:43] IP: Well, Ned Russell, thank you so much for joining us today and allowing us to use
your house as half of the recording studio. Always a pleasure to have you on the show and hope
we did not wake Heathrow.
[0:52:53] NR: She's sleeping soundly, Ian. Sleeping sound.
[0:52:57] IP: Excellent. I am Ian Petchenik, here, as always with –
[0:53:01] JR: Jason Rabinowitz. Thanks for listening.
[END]
© 2024 AvTalk 29