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Air Travel is frequently the most practical method of covering the large distances between cities in the USA. The domestic air system is extensive, with dozens of competing airlines, hundreds of airports and thousands of flights daily. The US is the world's largest aviation market. Domestic airlines have mostly rebounded since September 11. Delta (now merged with Northwest), United (merging with Continental) and US Airways have each entered and emerged from bankruptcy still flying, though mergers and downsizing have had an impact on the travel experience. The US has five major international airlines that function in a similar manner and size as a national carrier; American Airlines, United Airlines, Continental Airlines, Delta Air Lines and US Airways. The expansion of LCCs such as Southwest Airlines and JetBlue has increased competition and lowered prices domestically and in some cross-border markets.
The Federal Aviation Administration (FAA) is an agency of the United States Department of Transportation with authority to regulate and oversee all aspects of civil aviation in the US. The Transportation Security Administration (TSA) is the government agency responsible for security in all modes of transportation and is solely responsible for carrying out screening of passengers and their baggage (both checked and carry-on) at 450 airports across the US.
Airports in United States
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As Indigo Partners moves closer to finalising its acquisition of Frontier Airlines and heightens the efforts underway to transition the airline into a true ultra low-cost carrier similar to Spirit Airlines, certain nuances to Frontier’s strategy should prove interesting for Indigo to navigate as it works to place Frontier squarely in the US’s growing ultra low-cost business model. Overall, the ultra low-cost business scheme has so far proven fruitful for Spirit in terms of the carrier’s financial performance; but passengers still bristle about being nickel and dimed even though they are paying base fares lower than most other airlines (even so-called low-fare airlines) by a significant margin.
Headed by former Spirit Airlines chairman William Franke, Indigo was a major owner of Spirit as it began the transition to an ultra low-cost carrier in 2006. As is now well documented, he set the wheels in motion to purchase Frontier earlier in 2013 when he resigned as Spirit’s chairman and Indigo sold its stake in Spirit.
The deal is expected to close some time during 4Q2013; but Indigo has no doubt been plotting a strategy specific to Frontier’s network to ensure the successful execution of the business model change. It is a formidable challenge for a long-standing brand that for a long period of time offered at least some medium frills. Indigo’s biggest challenge may lie in avoiding isolating a loyal Frontier passenger base in Denver that has already endured a number of significant changes since its 2009 purchase by Republic Airways Holdings.
JetBlue’s recent launch of new service from Fort Lauderdale to its southern most destination Lima, Peru, marks an important milestone in the carrier’s strategy in Southern Florida that entails building up Fort Lauderdale to roughly 100 daily departures. Once Fort Lauderdale reaches that point, its strategic importance in JetBlue’s network will be solidified as the carrier penetrates deeper into the Caribbean and Latin America from Southern Florida.
The airline’s expansion from Fort Lauderdale continues unabated during 2014 when it launches flights to Montego Bay, Punta Cana and Port of Spain, further pressuring Spirit and Caribbean Airlines.
JetBlue presently serves two out of the three destinations – Montego Bay and Punta Cana – from other points in its network, so it believes it is executing the expansion from Fort Lauderdale efficiently as highlights its method of “connecting the dots”.
A beleaguered United Airlines has outlined ambitious goals for its investors that entails an annual cost cutting scheme of USD2 billion and a pledge to begin returning cash to shareholders by 2015.
After battling operational, revenue and cost challenges during the last couple of years, United has no choice but to crystallise a plan to improve its performance in the medium term. Its target of rewarding shareholders is likely to be a competitive response to Delta Air Lines, who recently outlined plans to return USD1 billion to its shareholders during the next three years.
Additionally, United believes it can increase pre-tax earnings by two to four times during the next four years. Taken together it is tall order for a company that is still trying to deliver on its merger synergy targets. Now that United has declared those goals, the challenge is to deliver a successful execution, something that sceptics might have a right to be weary of.
Delta Air Lines appears to be attempting to take a chunk of JetBlue’s successful build-up at Boston Logan for itself as a round of new route launches Delta has planned beginning in Mar-2014 are in markets largely dominated by JetBlue. While it is not as aggressive as some of Delta’s latest moves including a full-blown assault on long-time partner Alaska Airlines at its hub in Seattle, the minor push from Boston does reflect Delta’s no holds barred approach in ensuring it has ample presence in strategic US domestic markets.
JetBlue is by no means unfamiliar with competition from Delta as the Atlanta-hubbed carrier holds a significant seat share from JetBlue’s JFK hub, and in late 2012 and early 2013 added pressure to JetBlue in markets from both JFK and New York LaGuardia.
The move to bolster competition with JetBlue in Boston is interesting, and Delta could be adding service to feed Virgin Atlantic’s Heathrow flights as its joint venture with Delta begins. Delta’s additions will do little to change JetBlue’s dominance in Boston, but it does send a message that the carrier will remain aggressive in leveraging its network as United, at some point, will presumably will reap the synergies of its merger and American and US Airways officially start combining their operations.
A corporate leader of any organisation requires an unusual, sometimes extraordinary range of skills. Inevitably not every CEO has these; nor does having the skills necessarily always triumph over external forces. Timing is not everything but it is important. With time, those external forces change the skill sets needed, for example when an industry is undergoing major upheaval.
Arguably, given the complexity of the airline business, a leader in this industry has greater demands placed on him (rarely her; there are very few women CEOs). And today the world must seem a particularly hostile place for legacy airline managements and their workforces, under siege from all directions. Meanwhile the Gulf carriers and many new short-haul low-cost models are changing the demands made on competitors, as protectionism slips away and hiding places become scarce.
This CAPA report examines some of the features involved in making a great airline CEO – or not.
Even as losses continued for Brazil’s second largest airline Gol during 3Q2013, there were some positive signs in the carrier’s results and its efforts to improve its financial leverage. Its work during the past year to beat back the effects of a weakening Brazilian economy and the resulting pressure that has had on demand were evidenced in improved passenger unit revenue and yields.
Gol also recorded positive margin improvement and made strides in its leverage ratios as its exposure to the Brazilian domestic market is more pronounced than its major rival TAM, who as part of the LATAM Airlines Group is leveraging the parent company’s ability to transfer some of TAM’s exposure to the falling BRL to the LATAM balance sheet.
Going forward it seems that Gol aims to focus on international expansion as a means to weather the tough market conditions within Brazil. While the carrier is not prepared to divulge the form that expansion will take, additional service to the US might be in the offing.