A Clear Vision a Conversation with … Sean Durfy, Chief Executive O Cer, Westjet Airlines, Page 16

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A MAGAZINE FOR AIRLINE EXECUTIVES 2009 Issue No. 1

T a k i n g y o u r a i r l i n e t o n e w h e i g h t s A Clear Vision A Conversation With … Sean Durfy, Chief Executive O cer, WestJet Airlines, Page 16.

Special Section

Survival Guide

8 Japan Airlines takes steps to improve 21 Delta Air Lines/Northwest Airlines merger 44 its environmental performance impacts regional carriers Airlines have three basic options to raise capital

© 2009 Sabre Inc. All rights reserved. [email protected] Connecting The Dots The Delta Air Lines and Northwest Airlines merger has had a significant impact on regional carriers — specifically those that no longer partner with the new, combined network carrier.

By Michael Clarke | Ascend Contributor he recently completed merger of Delta In the majority of the cases, the major The jury is still out on what will happen to Air Lines and Northwest Airlines has network carrier was able to obtain more-favor- the remaining independent regional carriers, but Tcreated the world’s largest global car- able capacity purchase agreements as well many believe that they will either be acquired rier. As part of the terms and conditions of the as place a greater level of financial risk on the by their stronger counterparts and/or join forces acquisition, the combined airline has agreed to regional carrier. In the end, the stronger regional together to counteract the negotiating power of maintain its existing hub airports for the fore- carrier groups such as Republic Airlines and their network partners. seeable future, including major flight operations SkyWest Airlines were able to re-enforce their As the level of regional carrier operations in Amsterdam, Netherlands; Atlanta, Georgia; position as marquee regional partners with their increases for a given network carrier, the thorny Cincinnati, Ohio; Detroit, Michigan; Memphis, existing network partners as well as pick up issue of which ones will fly next-generation Tennessee; Minneapolis-St. Paul, Minnesota; some additional flying lost by smaller and often larger regional aircraft (70 seats or more) sur- regional New York City, New York; Salt Lake City, Utah; less-financially stable regional airlines. It was faces. Most network carriers are still restricted and Tokyo, Japan. essentially a matter of the strong getting stron- by scope clauses in their pilot contracts, and In addition, the two carriers will continue ger and the weak getting weaker or, in some they have found creative ways to deal with the to operate independently during the transition cases, ceasing operations altogether. situation by introducing first-class cabins on

process, until they can be merged onto a single Bombardier of courtesy Photo U.S. Department of Transportation operating certificate. This process is anticipated to take 12 to 18 months to fully complete. In the interim, it’s business as usual for the two carriers that, together, maintain partnerships with 10 regional carriers. While three of these carriers are direct subsidiaries of the new, combined carrier, Delta Air Lines’ relationship with the remaining regional carriers is governed by capacity purchase agreements that involve a fixed fee for departure or cost-plus contract. As part of these agreements, regional carriers are usually restricted to operate a limited number of aircraft below an agreed-upon seat capacity and on specific routes through specific pilot scope clauses, and they are in effect under the strategic control of the network carrier. Under these capacity purchase agreements, the network carrier assumes all the market risk and is responsible for commercial planning, revenue management, marketing, sales and distribution

of the airline product. It usually covers high-risk Airlines Northwest of courtesy Photo items such as aircraft ownership and insurance as well as fuel costs. The regional carrier is responsible for operating the flights and ensur- ing the availability of capacity for the network airline. Leading up to the merger, Delta Air Lines had proactively reviewed its existing agreements with each regional carrier and opted to terminate operations entirely with Big Sky Airlines and ExpressJet Airlines as well as sig- nificantly reduce its dependence on Freedom Airlines (subsidiary of Mesa Air Group). While Delta Air Lines’ original intent was to remove non-beneficial partnerships, it was also able to reduce the number of partner carriers and retire less-desirable aircraft from its fleet — primarily small regional jets (50 seats or less). Throughout the course of last year’s damaging economic downturn and simultane- ous escalation of fuel prices, U.S. domestic major network carriers started to re-evaluate the benefits of regional operations in their network systems. While Delta Air Lines’ and Northwest Airlines’ review may have been The merger between Delta Air Lines and Northwest Airlines, which has created the world’s accelerated by their pending merger, the largest airline, has significant benefits for regional partners such as Compass Airlines remaining network carriers also took a hard operated by Northwest Airlines and Comair serving Delta Connection. look at their partnerships.

22 ascend regional 23

Sabre ascend ®. He can be contacted contacted be can He ®. a The combined airline will at at [email protected]. Regional carriers aligned with Delta Air Within the context of a global airline alli- ines ceased operations operations ceased ines solutions in airline operations for L Airline Solutions Airline Michael Clarke is director of optimization optimization of director is Clarke Michael multiple trans-Atlantic service from all of all hub its from service trans-Atlantic multiple airports beyond the major European gateways of its alliance partners. For example, if a traveler chooses to fly from Düsseldorf, Nice, France, he would have to Germany, fly through New or or Atlanta. York Lines are well positioned to reap the benefits of being associated with the largest world’s carrier. However, it remains to be seen how Delta AirLines’ executes on its which will overall include how strategic to effectively plan, balance competing hub airports, manage the flow of passengers and aircraft throughout regional its network sys- multiple its manage and collaborate tem, effective make and ultimately operations, airline the to and sustain drive decisions renewal fleet efficiencies of its massive global network. ance, the number the of of destinations served by attractiveness the the dictate will players main alliance network to the business community and a serve to ability The public. traveling general the diverse range of destinations in terms of market distance and customer demand will mean that regional carriers will have an important role to play in connecting the domestic network. dots across the U.S. ExpressJet Airlines. Compass Airlines – 36 Mesaba Airlines – 53 Pinnacle Airlines – 133 Regional Partner (Number Of Assigned Aircraft/On Order) Atlantic Southeast Airlines (SkyWest) – 161 Atlantic Southeast Airlines (SkyWest) Chautauqua (Republic) – 37 Comair – 141 Freedom Airlines (Mesa) – 42 Pinnacle – 16 Shuttle America (Republic) – 15 Airlines – 91 SkyWest Sky Airlines and Currently, Currently, Northwest Airlines operates The future role of regional airline - opera Delta Air Lines has designated Atlanta Delta Air Lines Major Network Airline Northwest Airlines Prior to its merger with Northwest Airlines, Delta Air Air Delta Airlines, Northwest with merger its to Prior with regional partners Big continue its partnerships with 10 of its existing regional operators. Series aircraft as the replacement aircraft for the the for aircraft replacement the as aircraft Series sizeable DC-9 fleet. approximately 65 DC-9 aircraft, down from a high of more than 100 aircraft before the nomic eco- downturn and sky-rocketing fuel prices. The introduction of newer fuel-efficient and aircraft much in its more domestic operations could fundamentally change its current route structure. maintain to tions in decision the U.S. domestic its system goes without Lines, Air Delta For saying. its re-enforce only will hub airports major seven need for a strong, efficient regional aircraft fleet and network structure. For any network high-frequency provide carrier must it successful, be to connections between airport hubs so it can flow passengers to the appropriate gateway for their international destinations. to gateways international major as Cincinnati and Europe and Latin America; New as York a gateway to Europe and beyond; and Los Minneapolis-St Paul Angeles, and Tokyo as primary gate- airports hub remaining The to Asia/Pacific. ways will continue to play an active role of in domestic the passengers and flow potentially provide alternate gateways to various regions in will service The world. need for the high-frequency call for smaller capacity aircraft that can support hub-to-hub flying, especially between the closely located hubs of Detroit and Cincinnati on the one hand and Memphis and Atlanta on the other hand. It’s impractical for Delta Air Lines to offer - Prior to the merger, Northwest Airlines In general, the airline community has two two has community airline the general, In The The lingering issue of who will fly the Other carriers have simply opted to opted have have simply carriers Other However, However, the new Delta Air Lines’ inher The only caveat is that these aircraft Embrace the family of regional jets and assign assign and jets regional of family the Embrace their flying as dictated by pilot contracts, Preserve the status quo and order next-generation narrow-body aircraft that will be pro- duced by Airbus and Boeing.

had established had a established new — subsidiary Compass Airlines — to fly a fleet of CRJ-900s from Embraer Bombardier its E-175 three main hub and were used to operations these Initially, airports. supplement its mainline operations, but it was apparent to those in the industry that Compass Airlines was a feeding ground for gaining the necessary experience with the direction which to decide mid-range carriers regional to larger to go with the It DC-9 replacement. has often leading the of one as press the in reported been contenders for launching the Bombardier CRJ ited fleet of aging yet Airlines’ dependable Douglas Northwest DC-9s will end, and soon only time will tell how Air Delta Lines reach their will replace them. purchasing options: larger regional and CRJ-1000 jets Bombardier E195, — Embraer E190, such as the — C-Series Bombardier proposed will continue Embraer until major network carriers first and address foremost the scope clause issue as part of their pilot contract negotiations and decide fleet narrow-body their with go will they which direction replacement plans. the larger aircraft flown in house by their union- ized crewmembers and benefit from the other cost savings some of in to, having 70 from a capacity more seat in homogeneous ranging fleet are but include savings These seats. 110 cases, products in-flight of purchasing the to limited not and services, procurement of equipment, ground engine maintenance and spares, and, support in some cases, joint flight attendant training. many of the larger aircraft that offer service that on service in first-class some parallels essence the mainline aircraft. While narrow-body some will argue that the larger and more seats are there primarily for marketing purposes, spacious cabins to these happens what tell will time only either to aircraft allocate to free are carriers when the main operations or regional partners. manufacturers are manufacturers in no hurry to launch these venerable the to sell continue as they programs Boeing Next-Generation 737s and A320 the family of aircraft. Airbus For some airlines, however, the deadline and/or need narrow-body aircraft to is order fast new approaching, and they have been forced, in some to ingly, order cases additional aircraft from the current unwill- of generation narrow bodies. In since addition, are most not pilot contracts yet up for renewal at the top business it’s major carriers, network as usual for now.