360 - Scott McCartney with Guest Co-Host Dave Hilfman

0:27Thank you. SoCal, so easy. FlyOntario.com. The Executive MBA in Aviation at the University of Colorado, Denver. Business.ucDenver.edu. And by Cerium, the world's most trusted source of aviation analytics. Cerium.com. We also welcome your business's support. Contact us at airlinesconfidential.com. Welcome to Airlines Confidential. I'm Scott McCartney, and this is show number 360, which should have some significance like we just did a 360 or we have a 360 view of the airline industry or something like that. I guess we kind of do have that since we got a lot of financial reports this week and learned more about the largest airlines.

1:23And helping me take a full circle view of it all is airline veteran Dave Helfman, who has seen several airlines turn at least 180 in his career and some 360. Welcome back, Dave. Thanks, Scott. Always a privilege to be with you on Airlines Confidential. And yeah, I have seen all kinds of action, 360, 180. I'm sure there's other mathematical derivatives off all of this, but I think I have seen it all. Whatever sideways would be, right? Yes. 90 degrees, I guess. Yeah, yeah, whatever. Turnarounds, comebacks, and Lord knows, I think we're going to need some comebacks dealing with some of these fuel prices.

2:10But hey, congrats on show 360. That is quite extraordinary. You just got to love it. And it's only a pro because this is our Halloween show. Lots of spooky stuff in the earnings numbers, as you well know. I know you're the master of evaluating these reports. And other significant news this week, a candy bucket full of news, you might say. And hey, before we get into all that, what's your Halloween costume this year, Scott? Oh, you had to ask. Okay. This year, I'm going as a big, unmarked, nondescript cardboard box, as boring and plain and unexciting as I can possibly be. And I'm painting silver, gold, and platinum stripes on it.

2:58And there's a big label saying Southwest Airlines loyalty program. What do you think? I loved your personal creativity for the other side of it. Yeah, I guess, you know, it's just going to be a plain Jane looking Halloween costume for you. I have, you know, you can only imagine what's in my closet and my costumes. But I thought maybe this year I might go trick or treating as a Spirit Airlines bankruptcy judge. Oh, yeah. Yeah, yeah. Lest we forget one of the most impactful airline events of the year. I'm going to have to take a loudspeaker and make announcements out there saying, now boarding, Chapter 7.

3:42Or, I don't know, boom, boom. Maybe it's a little too soon for that. And it probably is. But I could go as my old boss, Scott Kirby, throwing shade on American Airlines. But one way or the other, I'm going to do my best to frighten and scare all the families on the block. I think that's plenty scary. Yes. You could even go as an FAA 737 MAX certification inspector. A hard hat, clipboard, enormous magnifying glass, and a roll of duct tape. Maybe a sign saying, looks good to me. Well, very interesting about that whole scenario and how timely on the 737 MAX 10. Because as you pointed out, finally, the FAA finally did certify that aircraft, which is the largest 737 variant ever.

4:43I know this has got to be absolutely music to everybody that helps finance Boeing, all the people at Boeing, and certainly all their customers worldwide and the other suppliers they work with. because it has been a plane long in the making and certifying and obviously so many challenges and ups and downs. But I'm thrilled for everybody involved with that program. And, you know, as you well know, it's that 737 MAX 10, about five feet longer than the MAX 9. It will carry, ready for this, up to 230 passengers. That's not a 737. And amazingly, because that's the only airplane in that, you know, in that roster at Boeing, that was really kind of close to the 757-200, which could carry the standard high capacity, single class configuration.

5:35So the Max 10 is only 11 inches shorter than a 757-200. And remember, they're the same width, 12 feet, four inches across. So this plane won't be flying across oceans all that much. But it will be pretty close to a 757 replacement for the domestic marketplace and for any of that domestic service, depending on where it's located around the world. And obviously, really competition, some real competition from Boeing to the Airbus A321 family. So finally, nice to see that for everybody involved in that program. I'm sure it'll be very successful. Yeah, yeah. It is a long time coming, right? I would say great.

6:18It is great. Airlines have been waiting for this a long time. I do think the A321 is a better product in many aspects. It can carry more passengers than the 737 MAX 10. It has longer range, has wider seats and coach. The 737 MAX 10 does have better fuel efficiency on shorter domestic routes, however. So that'll be a big plus for airlines. The A321neo has outsold the MAX 10 by far. 9 ,500 orders for the A321neo. That's just the A321neo and about 1 ,500 for the MAX 10. The A321 obviously came to market much sooner and had tons of orders even before Boeing locked down the design of the MAX 10. This is, again, Boeing trying to catch up with a stretch, with a bit of a jury-rigged configuration.

7:18So with all the delays in the MAX program, including the long certification delay for the MAX 10, the MAX 7 just got certified this past summer. It really hasn't been much of a fight against the A320 family, against the NEO. But airlines are eager for the MAX 10, and deliveries should start next year. Boeing has about 30, 40 of these things built and sitting in storage. WestJet's the launch customer and should get its first planes early next year. United expects Max 10s in the first half of the year as well. Alaska, American Delta, also all waiting for Max 10 deliveries. So speaking of all those airlines, their third quarter earnings are out.

8:03and we can learn a lot about how each airline is navigating the fuel storm. You know, it's interesting, Dave, the story is very much the same. At all of them, fuel is hurting significantly, and for most of them, the fare increases haven't kept up. But I do think what's really interesting is comparing the results and progress of the laggards, if they're catching up, the battle between United and Delta. There's a lot we can learn from digging into these numbers, even though the story is much the same across the industry. Yeah, you're right, Scott. It's been fascinating to listen to these results and kind of dig through all the insights.

8:49Before I even got to it, I did want to go back to that scenario with the Max 10, only because fuel was such a huge part of that one. And while you're right, you know, customers have preferences. Some, you know, if it's not Boeing, they're not going. Others are absolutely smitten with the Airbus products and they are great. And, you know, everybody has their opinions. But this industry, beyond the table stakes of having good, safe, reliable, hopefully customer-pleasing amenity. Fuel, it seems, always is such that huge differentiator or has such an outsized impact. Not surprising since it's behind labor expense.

9:29It's the second largest expense and often completely out of one's control, even though everybody's working hard to be more efficient and do whatever they can to help be really more productive and spend less on fuel wherever possible. But that's, I keep coming back to that Max 10 because that fuel advantage was such a key aspect of that airplane. And they have a long ways to go to catch up with Airbus, obviously by those numbers you were talking about. But anyway, had to shout out, again, congrats to Boeing. And I'm sure Airbus was anticipating at some point they were going to get it and have to be even more diligent in their sales activities.

10:05I think their backlog on those is maybe they're not going to be out, you know, giving away massive discounts. But it does mean You got that that serious competitor back and then finally flying on that. But yeah, and that that fuel advantage, it's twice as impactful as as it was before with fuel prices twice as high. Yeah. Yes. Yeah. And you have talked about and I know a number of the great co-hosts that have been on and some of the great guests that you've had, you know, former CEO types and everybody. I mean, still talking about that impact of fuel, which seems like it could be lingering around.

10:43And I'm sure we'll hit on that through some of this show. But it's just gotten to be more and more important and really a story of survivability or being able to be around enough to have a comeback story. I mean, I know there's more earnings reports. But anyway, such a key part. And you highlight a lot of that and have been through X number of shows since our last discussion. And I appreciate always you guys, you know, kind of walking through the impact of that and what it what it means for the industry long term. And speaking of, you know, one of my favorite airlines out there, obviously always biased.

11:17So sorry to all my listeners who are out there, you know, going, man, that guy does like to talk about United. But hey, my former employee and alumni airline, they were first out this last week. Obviously, Delta reported the previous week. And the result from both the carriers were pretty interesting, to say the least. I know you'll dig into the numbers, Scott, but there's an eye catcher there. And, of course, there's some pride on my part because Delta has been, perennially, such a great carrier. They've done a wonderful job over the years in all financial metrics, customer service and satisfaction metrics.

11:54I mean, investor metrics. You can just go down the line. And, you know, so a lot of respect there. But it was fun being a part of a carrier that was working to catch up to those numbers and hopefully exceed them at some point. And United has been chasing Delta in a lot of those areas. Well, I think we can finally say United caught Delta and actually passed Delta. Higher operating margin, higher net margin, fatter earnings. Not that earnings are fat these days for anyone, but United posted profits of about$1 billion. Not too shabby considering the cost of fuel. And Delta was at$756 million, so also not too shabby.

12:38But it is interesting, and it's just one quarter. But it's fascinating to see the progress that's been made. Mr. Kirby does have some serious bragging rights now. He could probably use some good news in light of all the grief he's taken this past week. Some of it self-imposed, but it's interesting to see how this last quarter has shaken out. Yeah, indeed it is. You know, the World Series is on, right? And I kind of look at the battle between Delta and United as the World Series of airline competition. They're the league champions slugging it out for the world title. So how did United overtake Delta as the most profitable airline, at least for the past quarter?

13:22Well, we've talked a lot about how United has been catching up, running a good, efficient operation with premium products, effective network strategy, strong hubs in big cities, and winning customers, especially corporate travelers, with improvements like Starlink Wi-Fi. So look at this quarter. United's passenger revenue was up 18 percent while Delta's was up 15 percent, right? A key metric. So when we talk about recovering the cost of oil through higher fares, United did better in this quarter. Passenger revenue up 18 percent, Delta up 15 percent. United's operating expenses, the other side of the ledger, United's operating expenses were up 23%, but Delta's were up a bit more, 25%, even though Delta has its own oil refinery, right?

14:15Which keeps the cost of oil a little bit lower for Delta. So you add those two together, essentially, United had an operating margin of 8.1 % and Delta 7.2%. Another key metric, right? We look at operating margin as how you can compare apples to apples. Who's doing better? More or less. There are accounting quirks in each company, what they count, what they don't count, how they count it, and all that. But operating margin is a really good measure of relative performance. A year ago, Delta was at 10 % and United at 9%. percent. So obviously, the margins are down, but that change, United at eight percent, Delta seven percent for the just completed quarter.

15:10And look at the bottom line, that$1 billion versus$756 million you mentioned, Delta earnings fell by almost half. That's what you need to expect when jet fuel prices have doubled. Though Delta had some other issues, and I'll get into that. But just remember, Delta earnings were 47 % smaller than a year ago, but United's net was up 8%, higher than a year ago. That's remarkable in this economic environment. United has been able to recover a lot of the higher costs from passengers and fare hikes. United's yield, the average passenger paid per mile, was up 17%. Delta's up only, I say only, up only 14%.

15:56You know, obviously a huge shock to consumers, right? The consumers are paying a lot more. These are big numbers. To be sure, Delta is still number one in lots of categories and one quarter does not a trend make. Delta has bigger market capitalization than United. It has less debt. It has better year to date stock performance. Delta is in a pretty plenty good position. And those Delta-specific issues I mentioned, Delta reported a$218 million loss on investments. That's a non-operating line item. It's also a swing from a$311 million gain a year ago. Now, they didn't lose that money. It's not cash out the door, but investments have to be marked to market price.

16:46Delta has ownership stakes in three airlines, 20 % of Latam, 49 % of Virgin Atlantic, 20 % of Aeromexico. And as we know, it's a rough world out there for airline stocks. So it would seem a chunk of the Delta earnings decline comes from losses in the value of Delta's investments. Don't get too choked up over it. Delta also has good benefits from its oil refinery. It reported that it paid 13 cents a gallon. That's a big number when you look at all the gallons they're buying. 13 cents a gallon less for jet fuel than it would have otherwise. That's a big benefit. Yeah, no question. And I did want to mention one quick note.

17:31You know, if you look at some other data, to be fair in these comparisons, like on the adjusted pre-tax profit and adjusted pre-tax margin, you know, like Delta was at 8.5%. If you look at the adjusted pre-tax margin at United was 6.2%. So I know we're talking about all the different numbers, you know, and you can always pick out different ones here and there, right? It's fascinating, but suffice to say these two heavyweight world series contenders, right, they are having a good battle. Oh, totally, totally. It's also important to note that not all the news out of United was rosy. Pressure from higher fuel prices is increasing, CEO Scott Kirby said.

18:12United slashed its estimate of fourth quarter earnings. Even so, United shares were up 4 % on Wednesday after the results came out Tuesday evening, more than any other U.S. airline that day. The caveat there is that oil prices were down slightly that day, and airline stocks these days just trade up or down based on oil prices more than anything else, as our friends Jamie Baker and Mark Streeter of J.P. Morgan noted in their research report this past week on their earnings, quote, equity gyrations remain almost entirely in the hands of the energy market. It wasn't the direction that I thought was interesting.

18:52It was that United was stronger than its rivals. I think the bottom line here in the Delta versus United World Series is that United is really kicking butt. Delta is sailing along, make no mistake, But maybe Scott Kirby is dressing up as United Profits for Halloween and his kids as Delta Profits, at least the kids who are shorter than than Scott is. Well, for sure. It's nice to see in the most difficult economic environments, or put it this way, I mean, the economy still in many ways is chugging right along and consumers continue to spend in spite of increasing prices across the board. maybe we just mostly on the fuel side, but to see the revenue generated by focusing on things that customers are, one, are willing to pay for and being able to manage their expenses reasonably well in light of what I would consider this year the exogenous shock of a war, right?

19:55That, you know, it's obviously off on foreign lands, but it has impact, such significant impact, especially on fuel in this case, it's pretty impressive to see anybody earns any money. Not everybody has, of course, but - No, history would tell us otherwise, right? It's always been, yeah. Exactly. And most times the carriers would be, if you saw this kind of shock on fuel, right, in most historical cases going back 20, 25 years, the carriers would have been reporting losses. And so it's, it is kind of amazing. The resiliency has been built up that these businesses, which the airlines have been trying hard to be like industrials, right.

20:36Trying to find ways to at least always make some money, may not make a ton, but some money. And I, you know, hats off to all the carriers that have been working those angles from whatever components of the business that they found a way to do it. So anyway, it's - Yeah, and it really does go back to what Richard Anderson and Doug Parker really tried to do with consolidation. And that was make airlines investable businesses, right? Stable businesses that could weather the storm because before it was such boom to bust that just a crazy industry and didn't have the stability that an investor would look for.

21:22Well, spot on. And obviously, Doug Parker talked a lot about that. But even before, Larry Kellner always chatted. I think Oscar, obviously, who is such a great co-host on the show. You know, we always talked about got to make this, like you said, it's got investable. People need to know that this is just not a market share game and it's boom and bust, that this is a reliable business, that, yeah, it is subject to some real shocks, but can it still make money? And I think you can see over time, just like you mentioned, between Richard Anderson or Ed Bastian or any of the players out there, that to get to an industry that responds rationally and finds everywhere to be more productive and efficient.

22:06And that's good for everybody, consumers, employees of all the carriers, right, suppliers and business partners. So it's just it's encouraging to see. I'm obviously proud of my alumni airline United for what they've accomplished thus far. Frankly, I'm proud of the whole industry for hanging in there and finding ways, even in the toughest of times. Some carriers, as we're going to talk about, you know, hasn't haven't fared as well, but it's certainly not totally their fault. But they still have to figure out a way in in high fuel prices to find a way to make money. One like Delta and in the United.

22:41So. Yeah, yeah. All right. Before we dig into the rest of the earnings, as Dave mentioned, the Halloween results get a little more scary. We want to thank our sponsors. Thanks to Ontario International Airport for its support of Airlines Confidential. Ontario International Airport is wrapping up major upgrades in both terminals with additional TSA screening lanes, welcoming exit corridors, modern family restrooms to make your journey smoother and more accessible than ever. Getting from parking to your gate quickly. What a concept. Getting from parking to your gate quickly and back again at the end of the journey is part of what makes ONT SoCal so easy.

23:24Visit flyontario.com to learn how the airport is keeping wait times low and creating a better travel experience, even as more passengers choose to fly through ONT. And thanks to the Executive MBA in Aviation at the University of Colorado, Denver, for making the podcast possible. The Executive MBA in Aviation at CU Denver is the first degree of its kind in the world, taught by industry experts and designed for ambitious leaders from across the aviation ecosystem with classes located at Denver International Airport and week-long residencies in Washington, D.C., and they just completed Munich, Germany.

24:03Airports around the world, students experience a hybrid, flexible course structure that balances in-person and online classes without career interruption. Go to business.ucdenver.edu to learn more. By the way, I keep wanting to ask you, since you're a high roller professor and very involved in this executive MBA program, if you notice, and my son Marshall went to Colorado State, but he loved University of Colorado. But they always talk about CU. Yeah. And then they say UC. Can we have a chat with the University of Colorado and try to get this figured out? It's either CU or UC. Can we have a chat on that one at some point in time?

24:49Yes, we should, because you're right. Everybody talks about CU, and yet the, you know. And yet it's the University of Colorado. I know this is not a, you know, probably one of the most pressings of the day, pressing issues, but it always confused me, and I am easily confusable. But anyway. No, it's a good point, and if you know that, you might be confused by the web address. I do recall when we were putting all this together with their sponsorship, we wanted a short, easy to understand URL that we could have. So business.ucdenver.edu. I think they probably thought, look, if you're not familiar, you're going to think University of Colorado is UC, even though once you get familiar, you're going to call it CU.

25:41Just remember, the web address is business.ucdenver.edu. You are right on the money. I knew I could bring up some prolific point today. Yeah, no, it's a good point. I hadn't recognized that, but that may have been some confusion. Hey, we want to thank our good friends at RTX as well here. RTX, a century of aerospace and defense innovation, shapes a unique perspective. It takes more than technology alone to rapidly advance the future of flight and strengthen global security. It takes the vision to see what's next, adapting expertise and scaling manufacturing capability to deliver where and when it matters most.

26:25Perspective is everything. RTX. Visit rtx.com to learn more. All right. More earnings results. Southwest, American, and Alaska. Let's start with Southwest because, you know, I'm already got the Halloween costume. Remember how impressed I was that United was able to increase net income? The bottom line, the number that really matters, increase net income by 8 percent. Well, Delta and others saw profits a lot lower than last year or losses a lot bigger. Well, Southwest did even better than United, way better. Southwest earned$270 million in this quarter compared to$54 million last year. Remember, a year ago, Southwest was already charging for checked bags, but not for extra legroom and seat assignments.

27:16Southwest posted the biggest increase in passenger revenue growth. Passenger revenue was up 23 percent. And Southwest had the smallest increase in operating costs, up 16 percent. Southwest still isn't putting up Delta and United-like margins, but it is getting closer. And, you know, it's a tough thing because they don't have the long-haul international first class and all that that helped drive the margins higher. One way I look at airline results is by calculating the profit or loss per passenger. How much did the airline make on each passenger boarding on average? Remember, it's passenger employments, so somebody making a connection counts as two passengers.

28:01But it gives you a great idea of the scale by looking at average per passenger results. In this quarter, United had a profit of almost$21 on every employing passenger, and Southwest earned$6.23 per passenger. Sure. So, right. We do, you know, United had, you know, a billion dollars in earning, had four times the earning of Southwest, but, you know, not not quite four times the earning per passenger. And let's just take a moment to remember what this means when we start wringing our hands about high airfares, because there's been a lot of talk out there, especially, you know, holiday coming up.

28:45It's going to cost so much more. It is going to cost so much more. But, you know, last quarter you took a flight on Southwest and it cost a whole lot more than a year ago. And the airline earned six dollars and twenty three cents. All that investment, all that equipment, all that staff and training, real estate risk added all up. And the airline pocketed six dollars of my fare. Seems fair to me. Yes. I mean, for all that gets talked about in the airline industry, I know we've talked about it on many, many shows. But the margins have gotten a lot better than they used to be. Dramatic. But it's still, it's not like some of the tech companies and the other folks that have these, you know, eye-popping margins.

29:30Still very reasonable margins considering the capital involved. It's just, you know, often outsized look at airlines and it's an outrage. and how could they be charging us? But bottom line is, is there very reasonable margins in the best of times and, you know, very tight in others. It takes a lot to make money in this business and it doesn't seem to be kind of the Apple margins or NVIDIA or some of these other ones. So, hey, and congrats to Southwest. We've certainly busted their chops during some of the transition. I mean, always had a lot of respect for them. Didn't, you know, didn't know if they were going to be able to move fast enough, transition through all this.

30:10Obviously dealing with Elliott, you know, the investment firm that loves to serve things up. But I give, you know, Bob Jordan and Tom Doxey, who obviously I know from United Days and a number. Eileen is over there in the sales side of it, who was just fantastic during my United Days. But they really have done a lot of great things. And I know not everybody agrees with that because some folks love just how Southwest did things. and they had an incredible history, but I give them credit for, you know, morphing into a different carrier. I'm sure, you know, the verdict's still out whether people feel like it's a better carrier.

30:50I will tell you, I've flown Southwest a couple of times recently, ponied up, bellied up to the bar, some more money for the extra legroom. And I think it's a very good product. I mean, it's, you know, you love extra legroom. And talk to a number of the in-flight professionals and gate agents just to see what they had to say about all the changes that have gone on. And almost universally, they love it. I think it's just helped them manage the boarding process. People aren't running onto the airplane trying to get their aisle or window. Anyway, the people I talk to seem to be a big fan of that. So again, kudos to Southwest for the change they make.

31:32I'm sure they're continuing to make plenty there. saw all the announcements, whether it's the lounges and all this other stuff. I'm sure we'll chat some more about that. The one thing I did want to mention in some of these earnings reports, Scott, I noticed that Southwest had a gain on sale and leasebacks. It's not shocking. It's happened through a number of years in the airline business. But they had a gain of$118 million on a broader transaction at$214 million, I think, or maybe it was$274 million in aircraft and engine sales. United had a similar kind of gain. Obviously, this, you know, makes the numbers look a bit better.

32:11And I think there's other carriers that have gone through that. But anyway, it's just interesting to see how it's playing out. And, you know, the airlines that made money, even if it was only six bucks per passenger, I mean, again, you're making some dough. Unfortunately, our friends in America and Alaska, both fine airlines, both going through transformations. Both posted losses. American almost$5 per passenger in losses and Alaska more than$9 per passenger. So Southwestern's$270 million. American lost$269 million. And frankly, that's a pretty interesting Halloween house of mirrors. So there were signs of progress though for American, Scott.

32:56Passenger revenue was up 20 percent and that was better than Delta and United. So, you know, give them credit for that. And I know they're finding ways to accelerate that and a lot of news on their management team and changes they're making. And American's costs didn't increase as much as Delta and United. And yet the bottom line at Delta and United was more than$1 billion better, each of them, than American. Here's an interesting comparison. Expenses at United and American were roughly the same in the quarter on an absolute dollar comparison. Both companies spent about$16 billion. United flew about 10 % more ASMs than American, so it is more efficient.

33:39You've been calling out American's operation because it's more expensive to run late and cancel more flights. We definitely know that. And some of that is no doubt baked into those numbers. United has more wide-body international flying, which generate cheaper ASMs. Other factors, too, for sure. But anyway, the costs are roughly the same. But United's revenue was about$1.5 billion bigger than American's. So I guess it just shows how much catching up American has to do even yet. Yeah, no, absolutely. That wide-body difference is is, is huge. I think United's got about a hundred more wide body aircraft than American and, um, that international flying, um, people have wanted to go, um, even though there's a war going on in, in, uh, in the Persian Gulf.

34:27So that has been a big advantage. And as you said, those wide bodies, um, uh, do rack up cheaper, uh, ASMs. So it, it, it does get hard to compare apples to apples, But the notion that American and United have about the same dollar cost, 16 billion, and United's got 10 % more ASMs, it's really significant. I'll just add, too, that Americans' higher debt levels weigh on the results. And that's a factor that I think we probably need to pay more attention to just in general over time. Americans' interest expense was$435 million in the third quarter. Delta's, by comparison, was only$146 million. So there's almost$300 million of earnings difference in there.

35:23And that's going to continue. That's a headwind that American has to deal with if it's ever going to catch up to these guys, at least in terms of earnings. Yep, yep, for sure. And again, I know a lot of good folks in America. And they have been making some changes. I think he may have covered it in last last week's show. And, you know, I certainly knew Brian Zanotans from his days at at Continental United. And then, you know, he went on to WestJet and then over to American and, you know, made some change there. And then on that commercial side and hired in some new folks. And so anyway, I know Americans hard at it.

36:01We certainly have called into question some of their transformation, whether it's fast enough. And I think they have a lot even yet to do. But, you know, hats off to all the moves they're trying to make to improve their product and ultimately their financial performance. So I know there's plenty of American fans out there and probably some stellar staff and employee folks that listen to the show. So we recognize there's change being made. Just got to keep the hammer down, right? I mean, you know, in your backyard, Scott. In fact, as part of my work with the Global Business Travel Association and WINIT, which is Women in Travel, and they do a lot of work together for promoting access into the travel business and promotions and just find ways to take advantage of all the great talent we have in this travel industry.

36:51I'm getting the privilege to actually have a meeting at the American Airlines headquarters there in Fort Worth. I've not been to the campus. They never really invited me to show up during my Continental or United days. Obviously, not a lot of sleuthing I can do. I'm sure they'll have some kind of guard watching me. But I was going to say, they're going to let you in through security? I don't know. You know, I didn't really think about it. But now that I've mentioned this, they may be taking a very close look at my background. But I'm very thankful to America. And I think Lucas Martin and a number of the folks on the sales side have been kind enough to provide a space at their headquarters, you know, just to see what's going on there.

37:32And so anyway, a big nod to them for hosting GBTA and the Win It conference over there. You'll love it. It's a really interesting headquarters, very open, lots of glass walls on offices, tons of gathering spaces, little conference rooms for meetings of four people from different teams, lots of communal spaces. And the whole idea was drive collaboration. And from all I hear from people out there, it really does work. It's a huge change for them from what I heard affectionately referred to as the prison of the old headquarters with, you know, thick walls and lots of separation and nobody ever saw anybody and all that.

38:22A 180 change. Now, we'll see if it actually shows up in results, but you'll love the headquarters. Oh, no, thanks for that. I am genuinely excited. I mean, I think I got to see Delta's headquarters one time because Mr. Bob Summers, you know, lit me in the building and there was a meeting in one of the industry trade groups. And actually, it may have been in our earlier days, I think, right outside Atlanta Hartsfield. Actually, it was when Continental and Delta and Northwest had done some stuff in the early, the Falcon days, they used to call it. But yeah, I've heard really nice things about this.

39:01And I'm sure the employee groups in America have got to be pleased about having that. I know it was great at Continental when we moved headquarters from Allen Parkway in Houston over to Smith Street, which was quite the swanky spot. You know, having everybody together, I think it does make a huge difference from a collaboration. And, you know, I don't know, Dave, you were across the street from Enron. It was not a great neighborhood in that sense. Well, hey, their collaboration, while illegal, was still very tight. They managed to get a lot of things done. I'm not sure anything was good. But, yeah, you're right.

39:351700 Smith was Enron. Now, you know, United ended up moving to a really nice new even building from that one in downtown Houston. And, well, I know we're going to chat about at some point George Bush Intergalactic Airport in Houston. Speaking of all the work they're doing at Terminal B and that new United Club. I'm talking about Texas, which I love. Anyway, I will report back on my visit over to the American headquarters, assuming that they let me in there. OK, excellent. Excellent. Hey, we can't overlook Alaska airline results because that's really interesting, too. Yeah. You know, I'm going to say right up front, as I've said before on this show, I'm a big Alaska Airlines fan.

40:16You know, spend part of my time or large part of my time in San Diego, in addition to my time down under in Melbourne. But, you know, they've added a ton of service. So is Southwest, in all fairness. But I've flown Alaska a lot and flying him later today on a trip down to Florida. But, you know, they had a pretty rough go of it. Again, they weren't seemingly able to pass on as much of the higher fuel costs to its customers as other airlines. passenger revenue was up only 13 percent and American and Southwest were both up more than 20 percent. Alaska ended up losing one hundred and forty seven million in the third quarter.

40:57Last year in the same period, it earned money. So Alaska said the headwinds include their new international flights that they're launching from Seattle. You know, always takes a while to build traffic on those new routes and work out the kinks. And those new routes to Europe and Asia face stiff competition from Delta and others. The other big headwind for Alaska, bigger in terms of dollars, is Hawaii. And of course, Alaska Hawaiian Airlines, still using the Hawaiian airline name, face lots of competition flying people to and from the islands and lots of competition from Southwest within the islands.

41:31So anyway, I got to say, I think Alaska is making some great moves. I'm a big fan of theirs. I know a number of their folks that had some backgrounds at my previous airlines. And really, they're focused on doing really good things. I like that management team. I think you'd see most customers, at least out in the West Coast, who've known them forever, always talk about the good customer service. And it's not like it's all roses there, but because they are growing and going through that integration with Hawaiian, although that's pretty well down the highway. And I love what they're doing in San Diego.

42:05But anyway, obviously, they're having challenges making money at the moment. and not shocking considering all that they're going through, but that's the story. So your thoughts, Scott, on that? Yeah. You know, Hawaii is really interesting, right? You buy an airline that's losing money, it doesn't magically start making money. You know, it can be really tough. And I've said before, that's a market, the inter-island market that, you know, was pointed it out to me. I think Peter Ingram said it, that, you know, it's kind of big enough for one and a half airlines, right? Yes. But you got two airlines there.

42:44So whenever you get over capacity, you're going to get low fares and low fares within the islands. It's a very sensitive issue for native Hawaiians. They rely on that service for essential stuff. Go to the doctor, you know, it's it connecting the islands is crucial they don't have interstate highways that can get them there so they rely on the airlines and so it's not like you can come in and say hey fuels you know more expensive so we're going to jack up the prices 25 percent as has happened elsewhere and you're losing money to begin with them so i i think that's that's tough but i i do agree i i I think they're making the right moves.

43:33It's going to take some time. Still a lot of questions. It's expensive to build markets like San Diego, right, where Southwest wants to be number one. Alaska wants to be number one. Delta's increased some service there and all. San Diego's really interesting. And Alaska just needs a bigger network. Yeah, absolutely. I know. And Scott, are we going to be talking about that? I keep thinking that's that whole Alaska Airlines JetBlue or one of the, you know, we always talk about, is that where we're heading? If this fuel prices stay, I know this will be time for another show. Yeah. Your point, I know we talk about what makes sense for that?

44:20Well, you know, I've talked a lot of it and we'll find out a lot more next week with JetBlue earnings. But the last couple of weeks, I've talked a lot about concerns about JetBlue's stock price. And it fell dramatically more this past week. And increasing concerns about JetBlue debt. They have a lot of cash. They have a lot of assets. But I think something happens there You know, it's probably next year. And yeah, I think Alaska is a bidder there. You know, Dave, the long term consolidation, you know, pie in the sky thing, the combination that really interests me is Alaska and American. Oh, yeah.

45:08Yeah. And, you know, I think, look, you know, Nat Pieper talked about building back up at LAX. I think Americans got a problem with a doesn't have a strong Pacific gateway of its own with its own metal. And and I think Alaska could provide that. Right. Seattle, geographically, the farther north you are, the shorter the routes are into Asia. geographically, Seattle's a great place for an Asian hub. And I think that makes a lot of sense. I think you could do a whole lot better in Seattle if you could squeeze Delta out of there with that. So I don't know. I just think that something has to happen, both for JetBlue and for Alaska, because the middle market is no man's land in the airline business.

46:04because it's a network business, right? There are no small cell phone carriers. Well, you're right. I mean, those conversations back in the day, and this is, you know, in the Richard Anderson, Kellner, Smysek, all the guys, I mean, when you had 10 airlines, right? And then we go to eight and then six. And, you know, my put was, we always talked about less paint jobs, but there was still plenty of competition. Those seats were flying and whether it was Delta Northwest, US Airways, American, Continental United, Southwest AirTrend. We are seeing that. And like my old boss, Mr. Jim Compton, who I haven't seen for a while, just love the guy.

46:50But we always talked, it is a network business. And there are places for some kind of niche carriers, but it was shrinking at the time. And that's almost 20 years ago, right? When all of that really started. And now we're seeing it play out now. Yeah, no, you can have a lot of competition with four airlines, right? But what you lose is the money losing competition. And that's what people focus on. And I don't think they really sort of take a step back. I mean, Spirit Airlines is a great example, right? The creditors and and lenders to Spirit were subsidizing passenger tickets because they were losing billions of dollars.

47:33And Spirit didn't charge the full cost of providing the flight because they were losing money. And so all those subsidized tickets disappeared from the market. And people say, oh my gosh, airfares are, you know, lost our low fare competition. Well, yeah, you've lost your money losing competition. But that just the economics of it, it just can't last forever. You just can't keep losing money forever. And so, yeah, I think we're headed for more consolidation. And, you know, this kind of plays right into some comments that Jamie Baker and Mark Streeter wrote this past week that I thought were really interesting.

48:20If jet fuel continues just below $5 a gallon or even goes above$5 a gallon, it's going to be really hard for lots of airlines to make money. And that is going to force big changes. So Jamie and Mark said, quote, our prevailing thinking is that something has to give should fuel prices remain in the$5 per gallon range. Whether that manifests in regime change at American, further industry consolidation, a JetBlue restructuring, parentheses, as the market is increasingly implying, close parentheses, or something we haven't yet considered, we remain of the view that Delta and United eventually emerge as the presumptive victors.

49:07They added, something's got to give if fuel prices don't, suggesting a tumultuous 2027. I think there's a lot of truth in that. I think you're absolutely right. And, you know, you talk about those artificially low fares based on the input cost today. And Scott Kirby was talking about that on CNBC the other day. I mean, he's talking about, I know, you know, obviously people love paying low fares, just like any products. but ultimately if it's artificially set in some ways, and like he was talking about, fares were a little artificially low coming out of COVID, right? And the whole pandemic. And then, you know, when they get more upset, it's just what you were talking about.

49:50You have to cover your cost and it's not cheap flying airplanes. And anyway, in the end, you know, carriers, these airlines need to be able to earn a return on their investments. Right. And, and I mean, that's how you get long-term sustainability and reliability, uh, employee employment perspective in all the great things airlines do, transporting humans and cargo and all the things that need to happen. So no, I'm, I'm with you. You were spot on Scott. I think maybe this 2027 is going to be pretty extraordinary. I guess buckle up, right? Uh, you know, and the, and the world could change quickly.

50:26We've certainly seen that before. Right. And if all of a sudden oil prices come crashing down. I don't think that's going to happen, but, you know, certainly always possible. Then the landscape changes. But if this continues, the losses are going to pile up. And I think there is going to be changes. And I think it's, you know, we talked last week back to the future, it's going to be with carriers that are, you know, making use of the bankruptcy courts to shed debt because they've piled on all kinds of debt. And it's a different antitrust equation in the courts when you talk about a failing carrier.

51:14JetBlue and Spirit did not do that when they got challenged by the Justice Department. They didn't claim Spirit was a failing carrier. Probably should have. But should have. Right. But that becomes a different criteria for the judge approving or disapproving of the merger on antitrust grounds. And obviously, the judge blocked it. I think if they had gone in with the failing carrier theory, you know, they just weren't there yet. But it would have been a different outcome. I well, I completely agree. And so it'll be interesting. I know next week we're going to be hearing from JetBlue and Frontier.

51:56And I think the week after is Allegiant. So, yes, it's going to be fascinating time. Well, it always is in the airline industry in this business. But yeah, it's like I said, let's buckle up and see what happens and could be some of the most extraordinary developments coming in, you know, in 2027 based on how things play out. All right. Speaking of buckling up in the cockpit, thanks to Infinity Flight Academy. Infinity Flight Academy is helping build the next generation of professional pilots who buckle up in the cockpit. Airline hiring may move in cycles, but developing skilled professional pilots takes years.

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53:27Visit Sirium.com for more information. Back with the mailbag in a moment. Promotional support provided by the ultimate avgeek website, thearchive.net, a vast collection of airline memorabilia, timetables, route maps, rare cabin and airport photos, special flights and more. All at thearchive.net, the hub of air transport history. Well, Dave, in the mailbag this week, Mary from Cleveland heard my rant last week about Southwest boring naming. And she raised an excellent point I hadn't thought of on the lounge name. Mary says, quote, I've seen industry and media chatter referring to the new Southwest Icon Lounge as the Ican Lounge.

54:11No explanation needed. The nickname practically writes itself. Did the brand team overlook this obvious association with one of the airline industry's most well-known corporate raiders while trying to create a brand that conveys prestige? your suggestion of Love Lounge seems like a much stronger fit. Well, thanks for that, Mary. The Carl Icahn Lounge, I hadn't made that connection, but oh my, Mary's right. Carl Icahn is hated by some in the industry for his destructive takeover and asset stripping of TWA in the late 1980s and early 1990s. He gained control through a leverage buyout. He sold off the crown jewels.

54:56He gave himself a lucrative ticket selling deal where he could sell tickets on his own website at a 45 % discount, stripping TWA of revenue, pricing power and everything. And it ended up pushing TWA to two bankruptcies. Icon did better at JetBlue more recently. He bought a minority stake, had two seats on the board. Everyone seemed to get along and he sold his position and exited. But horror of horrors, if this spreads beyond Halloween, the Carl Icahn Lounge or the Herb Kelleher Icahn Lounge. I don't know. I think they got a problem with that. It's going to be an inside joke, maybe. I don't know.

55:37Did you ever cross paths with Mr. Icahn, Dave? Well, you know what? I actually did. He certainly wouldn't have considered me, you know, a peer. I just remember meeting him in New York. And at the time, he even said something like one of his team members said, hey, do you think maybe we can almost like it was almost like an industry thing? He was looking for discount fares like you were talking about for his website. And I'm laughing. I'm thinking, well, we're not going to get involved in that. A, it's probably antitrust. B, I'm not sure who's really benefiting. I'm sure it's him. But anyway, he was a fascinating guy.

56:12And I know still highly successful in all his financial maneuvers. But, you know, I must say I didn't immediately associate what the Icon Lounge with Carl Icon. But, hey, I'm sure there's a lot of folks that maybe will make that jump. I am much more in your camp. I think they ought to be calling it the Love Lounge. But maybe Chase and their corporate branding folks just couldn't get their heads around that one. I know. I know. Lots of, you know, I joked last week, I joked with the Southwest people. You know, I've been saying it should be the Love Shack. And they looked into that. And somebody told me that, you know, some of the people came back and they said, yeah, we looked at that song.

56:57You know, that song, the Love Shack song. Yeah, that song's about sex. To which I said, well, you know, if you looked at your history, what do you think the airline was about? Well, yes. The hot pants and the boots and, you know, white leather boots and the flight attendants. And, you know. Everything's about that. Right. That's how it makes the world go round. Right. But they got hearts painted on the belly of the airplane and in the cabin. And it's the, you know, they wanted to be the love airline. So, you know, love lounge. I mean, you're right. This is going to be co-done with Chase and all of that.

57:35And look, they're going after a customer that doesn't give a flip about Southwest history. And so, you know, if you're going to try and take people away from United American Delta, it is about having lounges that are just as nice as United Delta and American. So I don't know. But, man, you know, what a slap to Herb, who was the antithesis of Carl Icahn, to have people think that the Icahn Lounge has any association at all with Carl Icahn. Couldn't agree more. And my feeling is somewhere along the way, they're going to figure out a way, even if it's, you know, again, it's the ICON Lounge. they are going to have to find a way to recognize that great history of Southwest.

58:28And whether it was Herb or even Colleen, right? Somehow, maybe they named the lounges like they named some of the planes out there, right? This is the Herb Kelleher Lounge. You know, you would love to see them do that. Again, a nod to history and, you know, fully understanding they're changing their products and all that. But for sure, it is kind of funny just to hear the different comments and what's going on. I didn't make that immediate jump. I didn't either. But hey, it is what it is. And I guess we'll see how they, you know, I guess there could have been a Lorenzo lounge, right? And that didn't happen.

59:04So over at Continental. Yeah, no, that would not bring in the customers, I don't think. Probably not a lot of love. Yeah, yeah. But hey, great time as always talking with you. We sure appreciate the chance to co-host with you, Scott. I mean, really been enjoying all the shows. So many good folks. I mean, you know, Christine and Maya and Charles and Oscar and, you know, right down. I know you've had Doug Parker and a bunch of high rollers in. So congrats on show 360. Pretty amazing. Ben would be so proud. I know that. I know he's looking down from his heavenly lounge up there, but it's just great to be a part of it.

59:44Ben was very proud of the podcast. and certainly would be proud of the growth. So, yes. Well, your leadership, brother, doesn't happen to you. Yeah, one thing I'm sure about is Ben would have an even better name for the lounges than we've thought of. He really would. He would. Yeah, yes. All right. Thank you, Dave. This has been so much fun and really insightful. I really appreciate it very much. Safe travels to you. I'll be back next week with Doug Parker, and I know we will have a lot more to talk about. So have a great week, everyone, and thank you for listening. Happy Halloween. This podcast is produced by Mass Media.

1:00:31Info at massmedia.net.