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Airlines Confidential Podcast
335 - Guest Co-Host Maya Leibman. Guest: Rick Elieson, Chief Revenue Officer, Signature Aviation
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Guest Co-Host Maya Leibman. Guest: Rick Elieson, …
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- [00:04]
A
Airlines confidential with Scott McCartney is made possible with support from RTX, Collins Aerospace, Pratt and Whitney and Raytheon. Connecting and protecting our world. RTX.com infinity flight the leader in Cadet Academy flight training programs infinityflight.com Ontario International Airport in Southern California, SoCal so Easy flyontario.com the executive MBA in aviation at the University of Colorado, Denver Business ucdenver.edu and by Cirium, the world's most trusted source of Aviation Analytics. Cirium.com we also welcome your business support. Contact us at airlinesconfidential.com welcome to Airlines Confidential. I'm Scott McCartney and I'm putting everyone unnoticed. This seems like history is about to happen, or maybe it already has as we record this on Monday. I'm both a student of airline history and a teacher now of airline history. And this week is going to be an historic one for the airline industry, or so it seems. So we're going to talk about that. We're going to be looking ahead at the possibilities before us. We're going to look back as well at the first quarter financial results for the five biggest US Carriers and a look back at the fatal Runway collision at New York's LaGuardia Airport between a fire truck and a regional jet with a NTSB preliminary report that just came out. We're also going to talk about a technical milestone for the Alaska Airlines acquisition of Hawaiian Airlines. And no one better to talk about all that with than Maya Liebman, longtime airline executive who has led through the bruising history of the past decades in this business, including 9 11, a bankruptcy, a merger and Covid and a passenger service system cutover. Welcome back, Maya.
- [02:12]
B
Thank you, Scott. It is great to be back with you. In addition to all of that that you've just covered, we're also going to talk to Rick Eliass. He is the chief revenue officer at Signature Aviation, a company that runs private aviation terminals around the world. Rick is a 27 year veteran of American Airlines and he ran the loyalty program there, the cargo division, digital marketing, vacation packaging, you name it. He has deep experience in pricing and yield management. He's about as well rounded an aviation leader as you will ever find. So we're going to talk with Rick about everything from remember when Doug Parker, Professor Doug, did his root profitability class? Well, Rick is going to add into that store of knowledge. And as well, we're going to talk about like the growing connections between the private jet world and the airline world. It's going to be super interesting.
- [03:07]
A
I think this is going to be fascinating, really looking Forward to talking with Rick. Okay, on to Trump Spirit Airlines. By the time you hear this podcast, that could be the new name. Just kidding about that. But Spirit has said it will soon run out of cash. Its lawyer in bankruptcy court said no later than the end of this week. He said that last week they were run out at the end of next week. So it's this week, folks, and it was going to have to shut down if Spirit doesn't get more access to the $240 million in restricted funds that it has. The restricted cash is money that creditors have forced Spirit to hang on to or credit card companies, just in case it does fold. And it seems to me they're unlikely to allow the company to burn through that. So I think this is really crunch time for Spirit and we'll see. So far, no buyer has emerged except for one, the White House. A potential buyer. President Donald Trump has the government negotiating with Spirit for a possible $500 million bailout package. In exchange for cash infusion, the government would get warrants to buy up to 90% of new equity in Spirit. Or that's how Trump has envisioned it. Should Spirit emerge from bankruptcy reorganization and issue new equity? No deal emerged over the weekend. And there is a lot of pushback in Washington, notably from key conservatives in Congress and from Mr. Trump's own Transportation Secretary, Sean Duffy, who told Reuters what we've all been saying, that a lot of money has already been thrown at Spirit and it hasn't found a way to be profitable. And Duffy's quote was, if no one wants to buy them, why would we buy them? Apparently, Duffy is is opposed inside the administration by Howard Lucknick, the commerce secretary, who thinks there would be good politics in saving jobs and saving Spirit ahead of the midterm elections. That's unclear. Duffy has apparently argued the opposite, that it would be bad politics, that people react badly to governments bailing out corporations. Mr. Trump said 14,000 jobs were at stake. That number has been widely repeated in the media. The pilots union is repeating it. I've even seen 15,000 jobs. It's wrong and I really wish my colleagues in the media would pay attention to this. Former colleagues in the media. Spirit is half the airline it used to be after getting rid of its fleet and pulling way back on its flying. In its February report to the bankruptcy court, Spirit showed full time equivalent employment of 7,028 jobs when it filed for bankruptcy reorganization back in August. By the way, it listed employment at 9,229 jobs. Spirit hadn't been 14,000 jobs in a long, long time. In January, Spirit had 6,905 employees. So to all my friends and former colleagues, let's be accurate. It's 7,000 jobs, not 14,000 jobs. Last week, Mr. Trump said, and here's the quote, I think the key quote. I'd love to be able to save those jobs. I'd love to be able to save an airline. And I think that last part of the quote gets right at what I've been saying. This is emotional and personal. Personal for this president, who used to own an airline until he lost it to his creditors and would like nothing more than to change his record in the airline business and be a savior, not a failure. There are certainly a lot of other issues with the government bailout of Spirit. Before we get to public policy precedent, there's the simple matter of the bankruptcy reorganization plan. The plan Spirit proposed had the outline of the plan Spirit proposed. They actually haven't filed a reorganization plan yet, but the outline had creditors taking future equity stakes in return for the money they've lost. But what equity is there for them if the government gets 90% of it? So why would lenders agree to any reorganization plan that put the government in line ahead of them? And if they won't agree to a reorganization plan, does that mean that the New York bankruptcy judge can cram it down on them anyway if they don't approve? I don't know. There's a lot of unknowns in all of this. That reorganization plan, as it was, couldn't get off the ground before oil prices doubled. And that's why Spirit is begging for a government bailout. As for public policy, the government did take stakes in failing companies during the great financial crisis. Gm, Chrysler, aig, big banks and others. The theory there was that they were too big to fail. The Trump administration more recently has taken ownership stakes in intel, which, by the way, just posted great earnings. And that government investment has soared in value, as well as rare earth mineral companies and US Steel. The justification there was national security. Spirit is neither neither too big to fail nor crucial for national security, although apparently one consideration the government is debating is whether to do this under sort of a defense appropriation, where you say, well, we'll use Spirit for moving troops around the country and therefore make it national security. Spirit's about 3% of the domestic travel market. That number is shrinking. Bigger airlines have grown and absorbed much of spirit's business already. JetBlue is already built up in Fort Lauderdale, Spirit's home, most likely anticipating a Spirit shutdown. Frontier is poised to be the big US Discount airline. And it would benefit, clearly from a Spirit collapse. Those carriers need more ticket buyers. You know, if Spirit does collapse, people will be able to get where they want to go. Will they have to pay more? Yeah, some will. For the past seven years, Spirit tickets have been subsidized by lenders. People are not paying the full cost of transporting them. That's why the company's losing Money. And if Mr. Trump gets his wish, those tickets will be subsidized by taxpayers for another, I don't know, 12 or 14 months, however long the cash lasts. So it brings me to my last point. My sorry to go on so long about this, but I guess like any teacher, I don't know when to shut up. What I teach in my aviation history class is that airlines can fail. It's okay. Heck, it's a good thing for the industry and for travelers, too, certainly in the long run. We're okay today without Braniff. We're okay without Pan Am, without Aloha or ATA or Midway. The last thing I tell my students at the end of the course, spoiler alert, is a thing I heard from the great Wall street analyst Sam Buttrick. There will always be airlines. They'll just have different names.
- [10:44]
B
Yeah, I can't really add anything to your diatribe, which I absolutely don't. Spirit's not too big to fail. They're not critical for national security. This feels like picking a winner. And those other airlines like Frontier and JetBlue, who are struggling but are still managing not to go into bankruptcy, are going to be hurt. And it doesn't feel fair. If the administration really cares about free markets, which ostensibly they say they do, then you really can't nationalize an airline that represents 3% of market share. Like you said, it's just going to be absorbed, that flying is still going to be there. It'll just be there with, you know, under a different name. So I'm with you on that one.
- [11:27]
A
You know, Americans capacity was up in the, in the first quarter, like 3 or 4%. That's like a whole nother Spirit airlines, right?
- [11:36]
B
Yeah, totally. All right, let's move on to airlines that aren't seeking government bailouts. Four of them reported first quarter financial results last week, United, American, Southwest and Alaska. And let's throw Delta into the comparison. Even though they reported two weeks ago. So every airline reported continued strong demand for tickets. People and companies are still traveling even with higher prices because the cost of jet fuel has doubled. Though to be fair, some of those flying you know, in this quarter around right now bought their tickets pre the war. But regardless, all the airlines reported continued strong demand. American and United both had 11% increases in revenue in the first three months of the year compared to the same period in 2025. Southwest and Delta saw revenue increase 13%. The results were a little bit more spread out on the expense side. So that was revenue on expenses. Deltas were up about 14% more than the others. American, United and Alaska were up about 7 to 9% at Southwest only up about 4%. That's because salaries and expenses weren't up as much at Southwest compared to the other airlines which saw some double digit increases. I think what happened there is Southwest had some pretty significant severance payments last year from when it made its, you know, that was the first layoff they'd ever had. So maybe that makes the year over year a little bit smaller.
- [13:10]
A
Ah, yes, yes, yes.
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B
The fuel is a similar story. Up double digits at United, Delta and American and Alaska, but only 9% for Southwest. Southwest, you know, are flying those 737 1800s, the maxes that have pretty good fuel efficiency. They're not flying long international trips that burn a lot of fuel. So, so their, their fuel story, their expenses weren't up as much. So I think that explains why they were looking a little bit better on the chasm side compared to the big legacies. All right, so that was revenue, then expense. Now let's look at what's really most important is profit. United did have the best bottom line among the big five carriers. It earned nearly 700 million in the quarter. But I think it's important to remember that, that United has not closed an agreement with their flight attendants. They have a tentative agreement. Remember the last one was voted down by something like 71% of the membership. They have not had a pay raise, these flight attendants since 2020. But there's a new tentative agreement out. I think they're voting on it for the next several weeks. So we'll hear how that one goes. But I mean that has some pretty jaw dropping signing bonuses and stuff, I think above 700 million. So that would have wiped out sort of that core borders earnings on for United. Southwest on the other hand, earned about 227 million. Delta, American and Alaska all reported losses. Delta's loss came from a big markdown in the value of their investments. Otherwise they had operating earnings of about 500 million before those charges. And on American side, the operating loss was a lot smaller this year than it was a year earlier. Even after American Said it results were hit pretty hard by storms in the early part of the quarter this year. American is planning slightly bigger capacity increases in the quarter than United, Delta and Southwest and others. There are signs of a little bit of catching up, even though they're paring capacity a little bit as a result of the increase in jet fuel, as is everybody. American and Alaska are also talking about increasing their partnership toward more revenue sharing. That's likely going to come sort of trying to get Alaska into not just into one world, which they are obviously already, but into some of the existing joint ventures. The jb, the joint business with BA on the Atlantic and JAL over the Pacific.
- [15:50]
A
Yeah, I thought it was fascinating quarter and great, great points about United and where they'd be and, you know, the Southwest numbers. The money is coming in. It's really interesting. One thing that caught my eye, Maya, was that the average fare at Southwest was up almost 17%. It's just a huge jump driven, of course, by the move to assign seating and more extra legroom rows, the fees that people are paying for that. And don't forget the baggage fees coming in. And not factored in average fare, but in the total revenue. Passenger Traffic was up 1.7% at Southwest capacity, up 1.5%. So not much change there at all. Pretty flat. But I think it means that people are still flying Southwest even as they were paying on average, 16.6% more. So kind of fascinating there. And I noted that last week Alaska moved Hawaiian Airlines onto the Alaska Passenger Service System. That's always a huge merger milestone. As many listeners know, airlines have hundreds, maybe thousands of computer systems, but the main ones involved in a merger are the loyalty system, the PSS, and the Flight Operating System. PSS is the system that handles boarding baggage, lots of operations functions from the time a passenger is shopping for a trip to making a reservation, to selecting a seat, to checking in, to boarding. All of those functions happen within the pss. In past mergers, PSS cutover has led to some nightmares for travelers. But all quiet for Alaska last week. It seems like job well done. You were in charge of merging US Airways into American Systems when you were the chief information officer at American. And I remember talking to you then about all the planning and testing and complexity that went into what turned out to be a very smooth PSS cutover for Americans. Talk about what's involved and how tricky it is.
- [18:04]
B
Yeah, these are really terrifying experiences. I think I got a lot of gray hair preparing for the American US Airways ones. I mean, the, the fact is, once you start, you really can't go back. I mean there really isn't a way to fall back once the, the process has begun. And the possibility, you know, you could ground the airline. I mean you could. And several airlines have gone through that, you know, with hundreds and hundreds of canceled flights and really unhappy customers. It's a real tightrope act. So I gotta give a big shout out and congratulations to the Alaska team. I think there was a small advantage to the fact that both Alaska and Hawaii are both housed within Sabre, which is the PSS that they both use. But there was still plenty of complexity of this one. They're going to continue to manage two different brands. Whereas for example like with American and US Airways, it was all sort of folding under one brand. Brand was going away and they I think created a brand new loyalty program. So you know, there's they had plenty of complexity and this kind of thing is never easy. So big hat tip to the folks at Alaska and Hawaiian.
- [19:19]
A
Yes, well said. Okay, time now for a hat tip to our sponsors for making this podcast possible. We want to thank Ontario International Airport, which is celebrating a decade of local control. Thanks to public support, the local community reclaimed ont revived it as a vital gateway in Southern California and ensured the airport is ready to soar even higher in the years to come. Visit flyontario.com 1010 to learn the story and find out how you can join the year long celebration of how a decade of local control has turned Ontario into one of California's fastest growing and most economical airports. In addition, thanks to the Executive MBA in Aviation at the University of Colorado Denver where the syllabus for the aviation history course is being rewritten this week. 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 at airports 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.
- [20:49]
B
We also want to thank RTX for its sponsorship of airlines Confidential RTX rallies more more than 180,000 innovators around a powerful vision to create a safer, more connected world with industry leading tools and technology. The RTX Global team works across market leading businesses Collins Aerospace, Pratt Whitney and Raytheon to drive progress for generations to come. Visit RTX.com to learn more. Okay, let's bring in Rick Eliason.
- [21:20]
A
Rick Eliason is the chief revenue officer at Signature Aviation, the world's largest network of private aviation terminals. He's been with signature nearly five years, and before that was at American Airlines for 28 years in 20 different roles, from president of the Advantage loyalty program to vice president of international operations, president of cargo, and managing director positions in digital, American vacations, revenue management, pricing, and more. At Signature, Rick is responsible for teams looking after guest experience, commercial strategy, global network strategy, environmental and sustainability issues, customer insights, revenue management, and loyalty and partnerships. It's a pleasure to have you join us on Airlines Confidential.
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C
Rick, thank you very much. Happy to be here.
- [22:08]
A
So let's start with the Baldanza question. Our favorite how did your career in this crazy aviation business begin?
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C
Yeah. You know, so many people, when they talk about how or why they got into aviation, speak almost reverently about the first time they got on a plane as a kid or something like that. And I always felt like something must be wrong with me that wasn't true of me at all. I came from a large family, and so we didn't fly anywhere. I have no romantic feelings on the topic. In fact, the first time I ever got on a plane, I was 18, headed to spring break my freshman year of college.
- [22:45]
A
Wow.
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C
And funny enough, that first flight is actually DC10. And apparently airlines weren't very good at managing their premium cabins back then. So I got upgraded to first class. Right. I started my journey, really, with a warped perception of what air travel was like. Fast forward a few years. I had an older brother who was working for Sabre that was part of American at the time, who had heard that American was hiring again after a period where there had been a freeze. He had done well. The company believed in what they were doing. This was back in the Bob Crandall days, and specifically, they were looking for foreign language speakers. So I applied for a job on the Japanese desk within reservations, and I started two weeks later. And back then, the first couple of weeks of training were unpaid. And so, one, I couldn't go without a paycheck, and two, they said there would be a test every day, and if you didn't score 90 or better, don't bother coming back. So I couldn't quit my old job yet. So instead I switched to a night shift, and I did both. And people must have thought I had narcolepsy or something, because every break we'd stop for lunch. I would just put my head on my desk and sit and sleep. So for me, I was just looking for a job. I quickly fell in love Some people call that Stockholm syndrome. And not because of the miracle of flight or the smell of jet fuel or however you put it, but because it's a super challenging industry. It's really complicated, it's super competitive, it's awash in data, and perhaps most importantly, it is full of really bright, capable, creative people. I. I've always felt like airlines punch over their weight in terms of the talent they're able to attract because of that glamour or allure for so many. And I was a beneficiary of that association with just brilliant people throughout my career.
- [24:29]
B
Yeah, yeah, I second that. The people are amazing and I think it's what keeps us coming back despite the hair pulling nature of the industry. All right, so tell us those are you, Scott, just like went through a thousand different roles that you've had. Tell us which ones were really your favorite and why.
- [24:50]
C
Yeah. You're asking me to pick a favorite child? Of course I have a favorite child.
- [24:54]
B
Yep. Now we're gonna make you decide.
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C
But I love them all. My favorite was always whatever job I was in at the time. I'm currently reading Jim Collins newest book, what to make of a Life and one of his theses. And I don't think he uses the word success, maybe uses the word meaningful. But he says one of the keys is to double down on the thing that you're really good at, to go all in. And he leans in on the fox versus Hedgehog analogy. Maybe, but I lean more towards a different philosophy and maybe they're not actually in conflict. But there's another recent book by a guy named Shigehiro Ishii titled Life in Three Dimensions, where the author tries to distinguish between a successful life, a meaningful life, and a rich life. And his key to the richness, he says, is varied experiences. And for me, I find that very self affirming because I loved working for a giant company that does a lot of different stuff. And I was fortunate enough that people repeatedly were willing to hire me into roles where I didn't know what I was doing. Now I know. Maya, I just dodged what was a simple question. Pick one. I'll say. When I was leading the Cargo organization, I remember having a conversation with Jim Butler, whom you had on the show not too long ago, and Kenji Hashimoto. And Jim was my predecessor as the head of cargo and my boss at the time. And Kenji was his predecessor. So the three of us are talking and the two of them essentially said it was a sad moment. They essentially said, look, someday you're going to get asked to move on to another role. It'll be more mainstream to the airline, probably higher impact with the company and it'll be viewed as an upgrade or more prominent, but it won't be as much fun. And they were right. This was probably like in 2017ish, something like that, where we had record reliability as an organization, we had record customer satisfaction, we had record revenue production, we crossed a billion dollars for the first time as an organization, all while going through a huge IT and business process transformation, replacing 90 plus systems as a team, we were firing on all cylinders. And that kind of success just isn't possible without just an outstanding culture and teamwork. And that was a cool thing to be a part of. And you know, yes, that the work that the cargo organization does is meaningful, but it was less about that and more about what we were talking about earlier. Just the people that you're associating with and surrounded with.
- [27:21]
A
Huh. So interesting. So I'm going to take you to a different part of your world. Pricing. We're very much steeped in the pricing and route profitability world that Doug Parker took us to school on and outlined so well. My major takeaway from that, I think maybe a lot of listeners too, was just how darn complicated it is. How much is involved that you don't really think about. When you think about is the airline making money on this route or not. Doug explained the why, but maybe you can tell us more about the how does that actually work? Talk about the practice and what mechanics of airline pricing. It's such a hyper competitive world, you know, and we hear about prices, you know, changing 20 times a day. But what, what's it really like in the trenches?
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C
Yeah, well, the mechanics are super fun. So Professor Parker spoke about the more strategic or structural pricing decisions and, and I led the pricing strategy group at America at one point. And we would grapple with things like how do you cope with the ending of the right amendment if, if you remove the perimeter rule at Dallas Love Field, how does that affect your pricing? Or you've got LCCs expanding in for lardo. How do you think about Miami pricing structures or the bundling or unbundling affairs and how you think about ancillary products, those sorts of large strategic pricing decisions. But airline pricing is super funded at a micro or the operational level too. And just to make it a point about, Doug made a distinction about yield management side of the house where you accept as a given that prices are competitively driven and you take those prices and then you largely have an internal focus on an optimal allocation of capacity, how demand is materializing relative to a forecast, and your constraints. I spent years developing those models. That's cool science, too, but that's not what I'm talking about here. The reality is you don't take prices as a given, but you work really hard to introduce or to defeat prices from the marketplace that aren't profitable or don't fit with your strategy. And what makes that complicated is a couple of things. One is the sheer volume of prices that we're talking about. And 20 years ago, I could have told you there were a hundred million price points. It's actually unknowable anymore because you have things like constructed fares or fare by rule, where as an airline, you don't actually file a price or a fare. You file all the components and just, you know, the anatomy of a fare. You've got price points, you've got rules, you've got routings. You. You file the components, and then the distributors, the GDSs, actually assemble them dynamically at the moment that someone inquires for a price. And so it is a massive number of price points.
- [30:10]
A
And then you. To infinity and beyond, I guess.
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C
Right, Right. And then compound that, Scott, with what you just mentioned, that prices actually get distributed 15 times a day. They're batched and cleared via a publishing house. And I've never worked on the stock exchange floor, but that's the closest thing I could imagine. Then imagine if all the, you know, New York Stock Exchange trades were batched and released every hour. Imagine the frenzy that would occur as that, you know, release happens. And you're trying to understand what just what just happened, what's going on. And in the airline world, that means 100,000 changes get released. They're live. You may be in a position of advantage or disadvantage, but the clock's ticking and you've got an hour to make sense of it, develop a response, and implement it. And the only real way to understand that, of course, is in the context of also what happened an hour ago in response to the previous release. So, for example, and this is every day, Southwest increase its fares by a dollar. Oh, except that they carved out markets where they compete with Frontier. Well, is that because they increased fares in Frontier served markets an hour ago and now they're spreading the increase or they intentionally omit Frontier, like. Like trying to understand and synthesize all that. And within that noise of all those changes, you're also always jockeying to gain an edge. Just give you an example. Your competitor Files a fare in a world of low product or carrier differentiation and high price sensitivity. You know, remember, most people on a plane only fly, you know, once or twice a year and don't care that much about which, which carrier they're on. You have three choices. You can ignore them, you can ignore that new fare, you can match it or you can match with some variation at, you know, hey, I'm going to match that price point, but I'm going to take a $5 higher or I'm going to add more or less restrictions. You know, okay, I'll match that price point, but I'm going to only for people who book way out. So I'll put a 21 day advance purchase requirement on that fare. Well, there is a fourth choice and airlines choose option four every day and it's like a needle in a haystack among the countless other fare changes that occur. But to give you an example of option four and I use Dallas LaGuardia as kind of my prototypical market where Americans got more than a dozen flights, Delta's got half as many. And then you've got, you know, Frontier Spirit with, with, with one or two flights a day. Well, let's say in a market like that where American and less. So Delta have a, have a much more significant presence, spirit files a $99 fare and, and Americans decided that the right strategy is the only match. Spirits pricing on the one flight has a similar timing. The Spirit schedule stinks. And why trash all affairs in the market? In a business oriented market where schedule is very important, why trash all your entire schedule, all your flights with that? Well, great. What if Delta feels differently about it and Delta thinks the right answer is a more aggressive tact and they decide to match Spirit on all their flights. So American rather than acquiescing to Delta strategy and, and you know, I never heard him said it, but I always heard attributed to Bob Crandall that you're only as smart as your dumbest competitor in the world of airline pricing.
- [33:31]
A
I heard it from David Bonderman, but there you go.
- [33:33]
C
Yeah, well, I think it's true. I think there's something to that. So rather than acquiesce to Delta's strategy, American files a $99 fare. Atlanta LaGuardia, where Americans only got a half dozen flights and Delta's got twice as many. Okay, well now Delta's got a choice to make. And if they connect the dots and maybe Delta escalates and adds a $99 fare from Chicago to LaGuardia, another American hub. Well now Now United's in the mix, and they're irritated, and they go at a $99 fare from Miami to LaGuardia. That's the kind of jockeying that goes on all day, every day. And every carrier is trying to promote its own agenda, its own pricing strategy. And it's. It isn't enough to decide what's right. So as we talk about, you know, what the right pricing strategy is. So basic economy was Doug's example. You may think, okay, basic economies, that's the way to go. But if your competitor has their own ideas, and they always do, or they don't have the ability to offer a product that strips out and charges separately for a seat assignment, you've got some battles to wage, and that's all good for consumers and perfectly legal. So so long as there's inventory out there and available. But, you know, you. You can talk about fair wars, but there are forced, fair skirmishes or fair battles, and there are reputations to uphold. And at any given airline, there's only a couple of guys who are doing that. And so there are personalities at play in all this. It's just. It's crazy, fluid and fun.
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A
So, but that. That was my other question. The volume seems so overwhelming. How much of this is automated and how much of it is those couple of people at each airline making decisions?
- [35:19]
C
It is, but that. And so, you know, there are points of escalation and rules of thumb that go into play, but you're constantly assessing, what's that balance of trade. Okay, here are all our positions again. I go back to my stock analogy. I've shorted a bunch of stock, and what is my exposure? And you're constantly weighing that against your hedges. And so you are fighting a fight, and it is real and tangible, and you are losing money making money, and you're assessing that constantly with every move as that strategy unfolds.
- [35:57]
B
Yeah, that's what makes it fun. Yeah. You know, it's funny because, of course, we can't have a discussion without mentioning AI so, you know, when people talk about AI in airline pricing, you know, they're talking about, like, Delta using Fetcher, you know, basically, am I going to be charged something different than, you know, my neighbor? Because they know something about me and my purchase habits and my ability to pay. And, you know, is that how AI is going to play into the space? And while it could very well, I think the real benefit that AI has in the pricing space is what you talked about, Rick, which is this frenzy every hour when the latest release is Made is that moment the ability to make sense of what your competitors have done and formulate quickly a good strategic response, understanding what all the downline implications are going to be. And that's really where I think AI has a really big play place, a real benefit to play in airline pricing.
- [37:08]
A
That.
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C
That use case is super clear to me.
- [37:11]
B
Yeah, yeah.
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C
The. The personalization has a distribution problem. That's a. That's a harder nut to crack. That isn't just about AI. It isn't just about smarts.
- [37:21]
A
Yeah.
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B
All right, well, let's. Let's shift now to your more recent world, which is private aviation or that space. So, you know, commercial airlines have, you know, have always cared about the premium segment, but I think there's a renewed focus right now. You're reading about it a lot. Private aviation is obviously the extreme end of that premium segment. So tell us, you know, what you're seeing. How is that segment performing? You know, is this the right place to be focused? There's so few of these customers. Should airlines really be putting all their focus in this area? Tell us what you're seeing.
- [38:00]
C
Yeah, well, it feels like every conversation starts with, well, back before COVID but that's exactly where I feel like I need to go.
- [38:08]
B
Yeah, for sure.
- [38:09]
C
The COVID hits and commercial airlines are devastated. Nobody's traveling. That was true in private aviation, too, for about a minute. What I mean is everybody's working from home, right? Well, if you've got a second home in Aspen, maybe I should work from there. And while we saw this broader shift towards states like Texas or Florida, where there weren't the same Covid restrictions, private aviation crowd property values in Idaho and Montana took off in the show Yellowstone, where the New Yorkers come to Wyoming and buy up all the land that isn't made up. The only thing made up about that is that it happened to Wyoming ages ago. Now it's other frontiers. But in 2021, early 2022, when commercial aviation was still really struggling and asking whether that premium segment would ever come back, private aviation volume was up almost 30% versus a 2019, a pre Covid baseline. And so, to a lesser degree, it is still true. And last month, the partial government shut down where TSA lines were around the block in places like Houston, Atlanta, there was a notable uptick in private aviation demand, and people were chartering aircraft. That's the other dynamic that's at play here. There's. There's a definite, and it may feel sound weird to say it, I'll call it the Southwest Effect. There is a Southwest effect that when Southwest, you know, expands into a new market, introduces new lower fares, they don't just shift share, but prices are low enough that it stimulates new demand. They grow the pie. Well, it used to be that if you want to fly private, I mean, it depends how nice of an aircraft you want, Maya, but the barriers to entry were really high. You know, I go spend $50 million for an aircraft and oh, by the way, and, and a hangar and maintenance and, and a crew. I knew a guy who, he made his billion dollars, bought a fantastic aircraft, but he hadn't secured a crew yet. And so he would take his family, go have a picnic on his jet that was sitting useless in a hangar. What's changed is the rise of the fractional model. That's your net jets, Flexjet, fista jet, wheels up like you can buy hours on an, on an airplane. And that barrier to entry has just come way down. Leave all those operational headaches to somebody else. And so versus 2019, if you look at privation as a whole, private aviation is up 40 plus percent. But that fractional model, those guys, some of them are up 100%. The private aviation segment has exploded. And ask anyone who's ever been upgraded. Ask me after my first flight. Once you get a taste of first class, it's really hard or taste of private, it's really hard to go backwards. So those flyers who got introduced to it over Covid have stuck around and it continues to grow.
- [41:06]
A
And that upgrade you got going to spring break changed your, your career.
- [41:11]
C
It definitely changed my perspective. Yes, it's.
- [41:13]
A
Once you get a taste of that
- [41:14]
B
first class, I guess all we really need is that just that second home in Aspen. Right, right.
- [41:20]
C
That's all it's missing.
- [41:23]
A
Do you, do you see any of the same? I think a lot of people after the pandemic just felt like they could. It was worth buying premium on airlines and airlines did make it more affordable. It seems like it's a similar trajectory. Right. Just at a different price point.
- [41:46]
C
Yeah, exactly. Just a different price point. And that price point is. And that's my argument, it's more. There are more people who, for whom it is within their reach and the bar or that barrier to entry has been lowered. So it's both. It is easier to I think attain.
- [42:03]
A
Yeah, yeah. So commercial airlines are thinning schedules and raising ticket prices and fees because of higher jet fuel prices. Has, has higher jet fuel affected private aviation or are they just more immune to the cost of gassing up?
- [42:21]
C
Yeah. So One of the great things about commercial aviation is cash flow, that people buy their ticket weeks or even months in advance. And that's great for airlines until fuel prices go up by 40% and you've already filled the plane. And private aviation is different in a couple of ways. The standard trope of you watch a movie and somebody's in flight and changes their destination. Well, yeah, it is. Private aviation is still a largely on demand business, meaning people haven't prepaid in advance. The flexibility is part of why people fly private. And the second is that the way jet fuel is sold is almost always on a cost basis. So the pass through, and I saw comments as recently as last week from airline executives talking about how it's going to take some time to to increase fares in order to compensate for that. In private aviation, the pass through is nearly 100%. So the question is, how does the consumer feel about the fact that they're suddenly paying so much more? Well, go back to my previous example where you know, you spend 15, could be 15, could be $50 million on your new jet. Oh, and you took advantage of accelerated depreciation tax laws.
- [43:35]
A
Yeah.
- [43:36]
C
How does that affect your attitude if Instead it costs $10,000 more to go to the FIFA game or to an F1 event? And the truth is the answer is it doesn't. Statistically I can say that private aviation demand is inelastic or is not affected by the price of oil. The higher oil prices do tend to have a knock on effect for the broader economy and that does affect private aviation demand. So it isn't the trip cost, it's my stock portfolio that dictates my willingness to travel, does that make sense? So it costs a little bit more. That actually isn't material for me. But if yesterday I was a crypto billionaire and today I'm a crypto millionaire, okay, that does. The statistical correlation for private demand is more aligned with GDP or consumer confidence, not with the operating cost of a flight.
- [44:31]
B
Oh, that's interesting. So it feels like there's a lot of these marriages between sort of the traditional, the legacy commercial and the private jet division. So Delta's got a tie up with Wheels Up, American has teamed up recently with TLC Jet. And so now you can earn advantage miles on your private jet travel. And United's got a partnership with JSX where you can book JSX through united.com and earn mileage plus miles. So tell us, give us your take on all of this. Is it?
- [45:03]
C
Yeah.
- [45:04]
B
Legacy is just trying to get in on this Slice of the market.
- [45:07]
C
They're all definitely paying attention. So I googled JSX the other day, and you know what the top sponsored hit was? It was American. Yeah. So evidence that they are paying attention. And in early Covid, the question is whether or not corporate travel and premium travel would ever recover. You know, exactly how comfortable are we taking calls on our pajamas all day. Everybody bought dogs so they couldn't travel. But it's clear to me that there is now a universal recognition that premium travel is growing and outpacing that segment is outpacing other travel segments, and that there's definitely an overlap. You can't just ignore it. The dynamic of what we were discussing earlier about the growth of the fractional model or schedule disruptions, we saw it even last month with tsa. Or was it last year when United had a system issue and it led to mass cancellations? Private aviation sees an uptick in that, and that's all public data. There should be no mystery or debate about whether or not there's actually some crossover between private aviation and commercial premium travel. To me, I see everyone's trying to get into it, but very different starting points. You mentioned American and TLC Jet. From what I, as an outsider and I read that TLC Jet is just buying miles from America. And to put it in context, TLC, they're a charter operator. They've got, I don't know, 20 some odd aircraft of their own, plus access to other Part 91 aircraft. So. So they've got their own aircraft. And then there are other people who have their jets. But hey, when I'm not using it, how about I turn over you to manage and you can, you know, Airbnb it out. You can make use of it as a, as a charter aircraft. But at its most basic, it looks to me like they're just buying miles. And anybody can buy miles. You can go buy miles and give them away at your company picnic. And I think of it as, I'll pick on, you know, Live Nation Ticketmaster. They haven't gotten beaten up enough lately. Yeah, but, but, you know, as a head of Advantage Maya, you know this very well. You get calls every day of somebody who says, hey, I've got great assets. Why don't you, you know, in the case of, like a Ticketmaster, why don't you buy tickets to these cool events and you go give them to your customers to either reward or engage them? Well, airline loyalty programs, you know, the airlines, they're not a buyer, they're a seller. Instead, they would say to Ticketmaster. Well, how about if you want an edge, you buy miles and you offer those to your customers like Infinity program. You know, you offer them to your customers and entice them to use your platform over some other. And in the, in I will say in the press release I saw they said there's more cooking. I'm sure there are. And these miles count towards status. So it's more than just an airline purchase. But it, it looks like it's pretty basic. It's not what we'll talk about United and Delta, but it's not quite what, you know the level of investment that I see United, Delta making yet. I also last week there was an announcement about American and Psych, formerly known as private suites. But they offer private again and further evidence that they're paying attention to the overlap that PS they operate private terminals within a commercial airport. So they operate out of Atlanta and la. Start started out largely catering to the movie industry. They're expanding in in Dallas and Miami later this summer. And that's where it sounds like they'll launch with American. But you clear security there and then they put you in a car and drive you out to your commercial aircraft or if you're connecting and you see this in Atlanta, hey, I'll fly my jet from, let's make it, I'll fly my jet from my private jet from Hilton Head to Atlanta. Then I'll hop on Delta to go fly to Greece right in that handoff is what P.S. does an American getting in bed with P.S. to say I recognize there's some overlap. We want to better facilitate that. We want to ingratiate ourselves with that customer base. Like that's interesting. And again it clearly shows a recognition or a desire to, to start, you know, taking advantage of those crossovers. In United's case, it's with JSX and they're semi private I think is how they refer. I, I've flown JSX a few times. It was Great. They put 30 seats on a 50 seat RJ. You earn, you earn miles. More interesting to me though with those arrangements is the flow of, you know, the flow of pilots from one airline to the other. And I, I think at least now it sounds like that's a one way flow from jsx. But you know, I don't know how pilot unions feel about it, but it could flow in the other direction as well and, and could be, I don't know this, but it could be a flow of aircraft as you take aircraft that perhaps a commercial airline is done with and you could reconfigure those and hand those over to jsx. Like that pilot, you know, those other assets moving around sound pretty interesting to me. The arrangements or the synergies there beyond simply a sharing of passengers or some or some information like that. In Delta's case, they've made a much bigger investment. 95% ownership of wheels off, embedded leadership, integrated sales and marketing. Like that feels a, like a much bigger strategy or investment stake than what what I see with the others. And maybe it's just further evolved or more mature. But they're all very active, whether it's charter, semi private, fractional, I'll say different flavors. You can say it's all private but very different starting points. Some are writing checks, some are collecting checks. It's kind of how I think of it.
- [50:54]
A
Fascinating. Fascinating. Do you think? I mean, it sort of started to look like we're headed that direction with airlines investing in a supersonic, you know, 100 passenger also sort of seems semi private. Are commercial airlines eventually going to get in into beyond what Delta is doing with wheels up? Have to get in much more to the private experience.
- [51:20]
C
Well, what's nice is it seems as though they're finding ways to get involved without having to bear the risk of in the case you talk about supersonic flight, you know, new technologies take forever to bring to market and you don't have to bear the risk of those new experimental technologies and still kind of take a stake.
- [51:40]
A
Yeah. Yeah. Interesting. Well, Rick, this has been fascinating. We really appreciate it. Looking forward to checking in again about the private jet world. It is something we need to pay more attention to, I think. So great to catch up with you and thank you.
- [51:55]
C
My pleasure. Super fun.
- [51:56]
B
Yeah. Really great to have you, Rick.
- [51:58]
C
Thank you. Likewise.
- [52:00]
A
We will be right back with more on airlines. Confidential promotional support provided by the ultimate Avgeek website, theairchive.net, a vast collection of airline memorabilia, timetables, route maps, rare cabin and airport photos, special flights and more, all@theairchive.net, the hub of air transport history. Thanks again to Rick. Really fascinating discussion. All right, before we get to the other important news item of the past week, we want to thank Infinity Flight Academy, the leader in cadet academy training programs, for helping us bring the podcast to you. Whether you're looking to build a custom pipeline or strengthen your existing cadet program, Infinity Flight Academy delivers consistent airline ready results. And for those of you listening who've always dreamed of flying or know someone who has, Infinity Flight has trained thousands of students many now flying for major airlines around the world. Learn more at infinityflight.com, infinity Flight Academy where future airline pilots take off and
- [53:02]
B
we want to thank Cirium. Cirium offers the most accurate and precise data and analytics to to enable airlines to optimize planning, operations and passenger services. The right intelligence drives operational efficiencies, enables you to predict market shifts, and helps airlines respond quickly to maximize revenue, manage costs and seize commercial opportunity. Visit cirium.com for more.
- [53:27]
A
The NTSB issued its preliminary report on the March 22 fatal Runway collision between an Air Canada Jazz CRG 900 and a new York and New Jersey Port Authority fire truck on Runway four at LaGuardia Airport. The two pilots on the CRJ were killed and six other people involved sustained serious injuries in that accident. A final report from the NTSB is still a year or two away, but the preliminary report was interesting in what it emphasized. The NTSB isn't assessing blame that comes with the final report, but it is clear what it thinks the major issues are, and seemingly first among major issues is the Port Authority's failure to equip its vehicles with transponders. A transponder on a ground vehicle broadcasts a unique identifier, just like on an airplane, so that ground radar systems in this case can clearly identify the vehicle. The FAA recommended that airports equip vehicles with transponders last year. The Port Authority hasn't done it, still hasn't done it, apparently. After this accident, the NTSB said the ground radar system in use at LaGuardia saw the clump of several emergency trucks responding to a problem with the United Airlines flight elsewhere on the airport. But without transponders, the system was unable to correlate the track of the truck involved that ran into the landing airplane. And because of the lack of transponder, the system could not predict the collision. It's designed to predict collisions. If the fire truck had a transponder, the NTSB said, the system would have given a visual and an audio alert to the controller and disaster might have been averted. I said this before on the podcast. Shame on the Port Authority for not putting safety first and double shame for for not acting after the accident. The Port Authority told the New York Times last week no changes had been made and it was waiting for the NTSB's report before properly equipping vehicles. Seriously, you have to wait for a report? One fatal crash isn't enough? Just shame on the Port Authority?
- [55:48]
B
Yeah, this is so tragic. I mean, just such, such a sad outcome. And you know, amen to your call out here. You identified this issue with the transponder weeks ago, right after the incident happened. And, yeah, you'd like to think that the Port Authority would be all over that, and it's kind of head scratching to understand why they wouldn't have already started working on that.
- [56:15]
A
Yeah, I know it's a. Look, it's a complex organization and a complex business and. And all, but, you know, there are just times when you have to say, you know, we're not going to worry about the rules. We're going to do the right thing before there's another accident.
- [56:29]
B
Yeah. Amen. All right, well, that's all for another episode of Airlines Confidential. Have a great week, everyone.
- [56:36]
A
Thank you, Maya. Thanks again to Rick, and thanks to all for listening. Oscar Munoz and I will be back next week to clean up whatever is left of this industry. Have a great week, everyone.
- [56:48]
B
Awesome. Thanks, Scott.
- [56:50]
A
This podcast is produced by Mass media info@massmedia.net.