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Airlines Confidential Podcast
343 - Scott McCartney with Guest Co-Host Christina Cassotis
01:05:58
Host Scott McCartney with Guest Co-Host Christina…
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Airlines confidential with Scott McCartney is made possible with support from RTX, Collins Aerospace,
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Pratt and Whitney and Raytheon.
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Connecting and protecting our world. RTX.com infinityflight the leader in Cadet Academy flight training programs. Infinityflight.com Ontario International Airport in Southern California state 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
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source of Aviation Analytics.
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Cirium.com we also welcome your business support.
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Contact us at airlinesconfidential.com welcome to Airlines Confidential. I'm Scott McCartney and I'm confused not by developments in the airline industry, although I certainly have plenty of days of confusion on that. No, it's this month that confuses me. June is both National Candy Month and National Fruits and Vegetables Month. And it seems like those two categories surely should have their own separate months. How can they coexist? National Candy Month and National Fruit and Vegetable Month together in June. That just shows you how polarized we are as a nation. Perhaps my co host can help me digest this stomach churning reality. Christina Casodis, welcome back. Are you team Candy or team Fruits and Vegetables?
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Okay, first of all, thank you, Scott. It's always great to be here. The first thing I want to know before I weigh in on my vote is do you have like a national Month alert set? Like, how do you even know this? That's what I want to start. Let's go, let's go deep into the assumptions of how you know that these two things are happening at the same time.
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I leave no chocolate unturned. We, we find news everywhere on our Confidential.
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You are down a rabbit hole. That's there's no doubt about that. I could have, I could argue for both. But you know, obviously we all want to be healthier and as you get older, man, the candy becomes less and less appealing as far as I'm concerned. But anyway, I would be thrilled to weigh in. I could argue for either being the winner.
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Yeah, right, right. Some days are fruits and vegetables and some days are candy. It's just the reality of life. All right, well, let's start with some sweet news, a couple of sweet tributes. First, I wanted to tell everyone that Marsha Baldanza, wife of our late co founder Ben Baldanza, is running in the Falmouth Road Race this year on Cape Cod to raise money for als, the horrible disease that took Ben too soon. The Falmouth Road Race is dedicated to raising money this year for ALS research and care. And Marcia is part of a team raising money specifically for the Healy center at Mass General Brigham in Boston. Money goes directly to compassionate individualized care, family support programs, groundbreaking research and hope for a future without als. We've put a banner with details on the airlines confidential homepage if you have any interest in supporting this very worthy cause.
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Hey Scott, thanks for doing that. My father in law died of ALS and I bet we all have somebody we know. So I think it's fantastic and I'm glad you put something on the homepage
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for Ben was very hopeful about about research on ALS and I think for good reason. I think they're getting closer and so supporting this is really important.
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Agreed.
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All right. Second sweet tribute is some airport world news. Pre Versailles, a prestigious global architecture and design award program announced annually at UNESCO headquarters in Paris, France is out with its 2026 list of the most beautiful airports in the world. Two of the seven winners this year are in the U.S. the new Terminal 1 at San Diego International Airport and Pittsburgh International Airport led by our very own co host Prevar Sai said each winner exhibits quote, extraordinary distinctive architecture and illustrates quote how airports are now turning away from the old standards in order to offer the world a richer, more harmonious point of view. For Pittsburgh specifically, Pre Versailles said the design and here's the quote celebrates the natural landscape with biophilic integrations blurring the line between indoors and out. The group added the airport is worthy of praise for its energy efficiency, it significantly shortened passenger distances and its inclusive comfort features, making it a role model for global air travel. Christina, I'm not sure what biophilic means, but I did look it up and even after finding the definition is still confusing, right? The human inclination to connect with nature and living things. I'm still confused by that, but I'm sure congratulations are due. Bravo. Great recognition of the fabulous project you built from conception to operation and many, many, many kudos to you.
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Well, thank you. And I will tell you that I heard the word biophilic during construction when somebody said oh it's wonderful that you have such a focus on biophilic design. And I thought I am definitely looking that one up. But I can say that does it taste extra?
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I'm sure it does.
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No, it does not. It does not. And that's actually what I was about to say is that the most exciting thing to me about this is that I really believe we proved and San D as well because San Diego, you know, with one Runway, God bless them and Kim Becker has done did there's a new CEO out There. But Kim, when she was CEO, was very focused on making sure that San Diego was represented in the design. I was very. And our team was very focused on making sure that it felt like you were someplace special, that there was a there there. And it turns out that when you do that and you're really thoughtful, that. That it can work for everybody and it does not have to cost a fortune. If I look at our cost per unplane passenger today versus when I got there 11 years ago, I think there's a $2 increase. And that's today's dollars versus, you know,
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$2 over 11 years, man.
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So, I mean, believe me, we went down in CPE because we were not. We were not investing in capital in the old terminal in order to change what we had to change for the future. So it. It was artif. I would say it was artificially deflated, but. Yeah, no, really exciting. And I loved their timing so that we could talk about it on. On this podcast for.
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I know that was.
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Thank you.
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Worked out perfectly.
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The other biggest thing about that I'm gonna. Is. Is just that it's. It's nice that, you know that Pittsburgh is in the background of that and getting the attention that I think it deserves as a. As a market and as a community that has done exciting things not only with its airport, but with its economy. And that, to me, is. Is the opportunity. You know, when the New York Post is running the article and. And every, you know, every paper in India is celebrating its award winners, etc, that just helps us in terms of recognition. And when you're a media market, you know, you're fighting through a lot of noise to. To get recognized for your market. So.
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Yeah.
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Really grateful for that.
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Yeah, yeah. No, it's well deserved. Well deserved.
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Thank you, thank you, thank you. Okay, so I will say that there's a lot going on, and I was at iata. I heard you talking to Chris last week, and I loved the podcast. A. He's of Greek heritage, so I insist on meeting him at some point.
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Yes, yes, yes.
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Because. Yes, I'm sure there's something we can talk about about our big fat Greek families. And also is. He's a chief comms officer. And I really, really, really appreciate strategic visionary executives who are in communications because I think they are the difference makers for organizations oftentimes. Right. So it's great that. That he's. I had no idea of his background in airlines, and that was fascinating. And I know you two talked a little bit about IATA and what happened there. I was there again Actually we got our an Award for 10 years of being a strategic partner at Willie Walsh's last iata. And he did, you know, he talked a lot about a lot of things including as you noted, aircrafts on backorder. I think there's 18,000 aircraft on backorder and the issues with the engines and etc. Etc. He also talked a lot about EU261 and I think it's worth, and of course he, he did not have much good to say about it and I think a lot of people share his view, especially those of us in the industry. And it's worth noting that the EU just updated EU 261 the passenger compensation regulations and unfortunately there's not much change, which is too bad because when you have a lot of delays caused by things well outside of an airport's or an airline's control, it's, you know, it's a little bit of, it's just sort of counterproductive to focus on penalties. But Anyway, this was 13 years in the making. Airlines had been pushing hard for relaxing the cash payments owed to delayed customers. Carriers, for example, wanted to expand the three hour window before compensation for a carrier caused delay is due to customers. But the EU pretty much kept it all the same. And that was actually the first update on the rules since 2004. EU261 requires compensation of between €250 and €600. If a flight is canceled or delayed by more than three hours and the airline is the cause of the disruption. I think this is the key that everybody gets a little jammed up about is well, what if it isn't and we're still having to pay compensation often worth more than the ticket itself. The new rules specify events that airlines don't have to compensate for events beyond their control, such as natural disasters, war, weather conditions, unruly passengers, air navigation or ground handling service provider strikes. I think the jury's out. The new rules require that airlines electronically provide clear instructions on claiming compensation to passengers facing delay or cancellation. Passengers will have nine months to file compensation requests and airlines have 30 days to respond. The rules also require air carriers ensure that any person accompanying a child below the age of 14 should be seated on the adjacent seat without paying extra. The same right will apply to passengers with disabilities and reduced mobility and to pregnant women. The new rules now include the right to carry on board without additional fee, one personal item such as a small bag or backpack. And they require carriers to display any fee for carry on baggage at the start of the booking process. Consumer groups applauded the rules. Airlines for Europe, the industry trade association, wasn't so happy. A4E said today's deal is a missed opportunity for a balanced reform that would have delivered what passengers care about most, getting to their destination on time and having the freedom to opt for the services that matter to them. And I'm guessing that part of that would include a single sky. Yeah, maybe, if all, you know what I mean? I mean there's a lot. I think it's interesting that they're saying, okay, you don't have to pay for anything that is weather related, et cetera, et cetera. It's, it's, there's not an airline out there that is going to go into massive delays because it feels like it.
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Yeah.
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Do you know what I mean? Like, who wants to do that? The rebooking and the sort of what it, you know, the chaos that it throws into the system is massive. And you know, I'm all for, you know, somebody who's egregiously flouting, you know, customer concern getting penalized, but the market usually does that.
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Well, it's, it's, what I don't like is it's, it's punitive to airlines and there's, and there's not, there's not a sort of a commensurate investment by government on its side. Right. Air travel is not simply an airline business. The airline can't move the airplane without permission from some government entity or another. And so where's the accountability on the government side? You know, I think Euro control has, has done a much better job, but still dealing with, you know, 26 different service providers, air traffic control, and it's, it's difficult and there, there's been certainly a lot of investment in better technology, things like that, but not a lot of accountability for the delays that airlines encounter. And because of air traffic control problems and so many other things, airport infrastructure, lots of other issues. So it's a multifaceted problem and we have a, one part of the puzzle gets singled out. And you know, I think that's right. On the other hand, I do think from a consumer point of view there, there has been improvement on the airline side, no doubt driven by the cost of these penalties and a consumer who's, if you're, if you're canceled and you get, you know, you got hotel costs and you miss your whatever. I mean, I understand compensation for that.
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Me too.
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A three hour delay, I don't know, you know, air travel is not, it's different running trains and other things. Right. There's a lot that goes into it. I think it can be dangerous to give airlines an incentive to operate a flight that, and I'm not suggesting this happens because I think airlines are very disciplined about it. But, you know, there's a big penalty if you don't operate that flight. So I don't know, I don't like it for the inequities involved in it. I think there was an opportunity here to make it much more reasonable and that was missed. Also, it's interesting, the reporting on this. There has been a lot of confusion on this carry on baggage rule and this is really important. This was reported by some as a ban on fees for carry on bags, which obviously would have a huge impact Ron Ryanair and EasyJet in particular. Right. So one report, and this is, you know, major media stuff in Europe. One report I saw stated, quote, the rules also spell the end of cabin baggage fees, a common practice among low cost airlines like Ryanair, EasyJet. Another headline said, EU airlines can no longer charge for carry on suitcases under the new law. I don't think that's correct at all. Instead, the rule simply requires disclosure of a fee when booking. Airlines can still advertise a low fare without a carry on bag fee as
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long as you publish it so people can see it. Yeah, I had it.
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As long as you say, okay, if you have a carry on bag, you got to pay €25 more or whatever, whatever the cost is. So, you know, I, I think that needs to be cleared up because I think a lot of, a lot of consumers are going to read that and say, well, what do you mean? You're charging me for a bag in the overhead bin. But airlines can still do that.
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I'm pretty sure that what most people care about more than compensation is getting to where they want to go.
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Yes, exactly. Right, exactly.
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And one of the things that I remember what Willie said about this at iata, he said it's like charging bus drivers for issues with roadworks.
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Yeah.
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And I thought that was incredible.
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Or for traffic in general.
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Yeah, exactly. But the other thing is, I'm just listening to a lot of conversation this year at iata, and I'm always fascinated by the AGM and the following conference that takes place. Aviation, I will say this repeatedly, is incredibly. It is so critical. You talked about this last week with Chris. It's no longer a luxury, it's a utility. It's something that people actually need and we, as a global economy need. And yet it keeps getting nitpicked by rates and charges. And fees and penalties in a way that I think doesn't allow the system to deliver the value it really should or to reinvest in the ways that it should. And I mean, system, not just airlines. Airlines are the, I think, the easiest to pick on. And I say that as an airport. So believe me, that's saying something because it's easy to pick on airports, but it really does take a whole system. And so when I see something like EU261, I understand the intent, but it's a little bit like, you know, the penalties for clean fuel. I mean, I don't think we should be incenting carriers to fly on time either. But I do think we should be really careful before we keep loading up penalties that are not necessarily meeting the stated goal. The stated goal is get people where they need to go.
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Right.
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That's what that's. And that's actually what the passenger cares about. Like, thank you. Great. I'm going to get, I should get reimbursed for the hotel, you know, if you have a mechanical or if I'm delayed by, you know, 10 hours and I missed all of my flights. Okay, I get that. And that is, I understand that, but I don't understand some of what's in here and some of the rules that are getting promulgated under 261.
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Yeah, no, there's a, there's a large element of this, of, hey, politicians beating up on airlines, which we've talked about a lot. That was, you know, that was a big, big issue with Pete Buttigieg and the previous administration of, you know, let's make gains politically by beating up on airlines. And that's. I just think that's wrong.
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I do too. But I also think if, you know, if you go back to the conversation again, if I go back to Chris's role, I think that when you have really good communication when things do go wrong and stuff goes wrong every day, that it can make a big difference. And it can make the difference between somebody saying, okay, I get it. What can we do about it? How can I get where I'm going versus, you know, somehow I'm being targeted, victimized. And I am, you know, I am, I rate at the fact that this has happened to me. Like things go wrong in this system. So how can we work together to, to have the recovery be more cross functional involved and get people where they need to go while they're not screaming at somebody? I mean, that's my. Anyway. That we could talk about this forever anyway.
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Yeah, yeah. No, and we could. And you know, I would much rather see government come back with a sort of forced interline agreement accommodation rule like the old days. Like the old days. Regulated industry. So your flight's three hours late.
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Yeah. You must accommodate.
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Don't write me a check. Give me a ticket on another airline that can get me there. I would much prefer that.
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I remember those days. Right. And that was after deregulation too, Scott, because.
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Well, it lasted for a while. Yes, I think it was 270 or something. And so it was in the contract of carriage and it did continue and I think actually I've heard rumblings of a bit of a comeback. The. A couple of airlines that you wouldn't expect.
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Really.
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Yeah. Are willing to talking about the possibility of accommodating customers on each other's flights with disruptions which, which I think, you know, really would be wonderful. A huge benefit for the traveling public and you know, in the end a benefit for, for the airline. It was a particular issue I think in the discount sector with a carrier like Spirit where if a flight got canceled, you were stuck for four or five days because there may be one or two flights a day and they're full and they don't have the ability. Well, if the system forced them to buy a ticket, Spirit has to buy a ticket on Delta at a set rate. That's a big incentive for Spirit not to cancel flights. Right. But a big benefit to travelers, you know, not that they going to get a check in 90 days, but that they get to where they want to go.
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Again, the check is, the check is really not going to help you if you miss the interview, the wedding and or you know, getting home in time to see, I don't know, you know, your kids school play. I mean these are. That's not what people want. They want to get there. So you and I are saying the same thing.
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Yeah, yeah. All right, from, from Europe, speaking of accountability, let's turn towards the Pacific and Asia. I was really interested to see that Mitsuko Tottori, and I'm probably not pronouncing that correctly, but Mitsuko Totori, the CEO of Japan Airlines, is taking a 30% pay cut for two months following an incident where a cabin attendant failed a pre flight alcohol test which delayed a flight from Hiroshima to Tokyo Haneda on May 23. Totori, who actually started her aviation career as a flight attendant in 1985, also implemented an immediate ban on drinking for crew members during work layovers. As listeners no doubt know, Japanese culture has very strict accountability ethic it's the same cultural imperative that has Japanese soccer fans picking up trash after a World cup match. The happened in, in, in the Dallas stadium where the match was over. They got out blue trash bags and they were picking and cleaning up the stadium. It was, it was just an amazing scene which you would never see from us fans or anybody else. But they wanted to make sure they left it as, as they found it or cleaner than they found it. Very, very admirable, and I think admirable to take a temporary pay cut as accountability for this flight delay.
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Yeah. And what it says is that, you know, is that if I think about, you know, the blameless postmortem in a hot wash. Right. Every time there's an incident or something goes sideways at an airport, and I'm sure they do them at airlines too. It's a little bit of like, okay, let's take a look at what happened here. And the way that we always think about it is we look at system, process and then people. And in this case, what I see the CEO doing is saying we are all accountable as a culture for the fact that this happened. And I will take the responsibility of not only changing it, but demonstrating that I am taking accountability. I mean, I think we used to have a lot more of that in, in, in places. And I think, yeah, very incredibly admirable. And I think also great for you to call it out. So. Yeah, yeah, yeah. Okay. So there's another Pacific note, Scott, which is Hawaiian, said that beginning next month it's no longer serving free meals in economy on long domestic flights. New York Honolulu is an exception, but other than that, food will be buy on board. Hawaiian said it will introduce a pre order option for economy passengers, which I think makes a lot of sense. It's an interesting cost cutting move at a time when travelers seem to be responding more and more to service and perks. And Bare Bones seems to be struggling. The reason that I think pre ordering is great is because it just helps with some sort of certainty in terms of what you need to put on that plane. So I think that doesn't scare me. Bare Bones is struggling, but this, to me, this doesn't feel bare bones. It feels like what everybody else is doing. So, I mean, who's serving economy on long haul anymore? Unless it's international?
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Yeah, I mean, you know, Hawaii to mainland, that's obviously New York longer. But, you know, you're, you're on the plane for, I don't know, what, four hours. Dallas, you know, Dallas is Dallas, Honolulu, six or eight Hours. I've done Dallas, Maui and I think it's eight hours. So yeah, you're going to need to eat something, right? Yeah. So you know, you can, I mean this gives you the option. You can, you can bring it on board or buy it or, or buy it on board or order it. I mean, I think, you know, the pre order is nice. It has a little bit of a first class feel to it. Yeah. And I think they've, you know, they've upgraded the food selection. On the other hand, I mean they, they used to have a, an option where you, you'd get a meal or you could buy on the airplane, you could buy an upgraded meal and I think that got, that got hard to cater. Right. How do you run out of upgraded meals? But what if everybody buys? You know, it gets hard to manage. So you know, this is, this is probably better. My pause in this is you don't like it. I don't like it because it has the feel of traditional airline cost cutting. Take the food off the airplane. And I think that's not the airline economy we're in right now. And if you're flying long haul in Hawaii, we're not talking about meals inter island but mainland to Hawaii, that's a big trip. It's your big vacation or whatever. And to immediately get hit. Okay, yeah, you can buy a chicken sandwich but it's going to cost you $17 or something on the airplane. I don't know.
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I think, you know, it's so interesting because you know, I grew up in Boston and until I moved to Pittsburgh, anything to the west coast was, you know, six hours.
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Right.
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And there's not, I mean you're buying on board. Yeah. So, you know, so transcon, there's a lot of transcon that's not offering food unless you're pre ordering. Well, you don't even get the chance to pre order. Right. I mean I think in economy you're
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pretty much buying and buy on board has largely faded away. In coach, I mean you could, you know, you can, it's non perishable stuff. You can buy a snack box or something. Right. But the days of fresh salads and sandwiches. Fair enough.
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In economy, you know, this goes to the cost of operating an airline and I agree with you. I think it is a traditional airline cost cutting measure. And at a time when airlines are getting hammered with fuel costs that hadn't necessarily been budgeted for the year, I guess maybe that's a sign of the times.
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Yeah, yeah, yeah. Okay, time now to thank our sponsors. We want to thank Infinity Flight Academy for its sponsorship of Airlines Confidential. The path to the flight deck starts long before a pilot reaches the airlines. At Infinity Flight Academy, they're proud to serve as a flight training partner for the American Airlines Cadet Academy, helping prepare the next generation of professional airline pilots. Infinity Flight Academy's training is structured, standardized and built around the discipline today's airlines expect from day one. For future pilots pursuing a career at the highest level, Infinity Flight Academy is proud to be part of that journey. Infinity Flight Academy training tomorrow's airline pilots through the American Airlines Cadet Academy. Thanks as well to Cirium for making this podcast possible. Cirium offers the most accurate and precise data and analytics 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.
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A
Okay, and I also think we want to thank Ontario International Airport and their fantastic team. They just launched the ONT BOLD Program. Ontario BOLD Program a proposed vision to transform the airport's facilities to streamline the passenger journey while also creating jobs, growing the regional economy and building on ont's legacy as a global gateway. The program includes plans for a new terminal, a multi story parking garage, upgrades to existing terminals, enhanced roadways and new utilities. Sounds very familiar and I have complete confidence in his team. We actually spoke about it quite a bit at Passenger Terminal Expo this year. The Ontario BOLD Program is early in the planning phase. Visit flyontario.com bold to learn more and to join the journey to Ontario's boldest chapter yet.
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B
Interesting update on airline equities and debt from our friends. Speaking of finances from our friends Jamie Baker and Mark Streeter at JP Morgan. On the equity side, Jamie noted the obvious that lower oil prices will raise airline financial results this year. From what we had been worried about with higher oil prices, oil prices came down last week over the weekend as we record this, the Strait of Hormuz is apparently closed again, so oil prices may be going back up. You know, it's who knows where it's all going to end up. But Jamie suggested investors focus on two things, airline capacity in the second half of the year and whether Delta Airlines is fully valued or instead perhaps worthy of new different treatment from investors. I think this is really interesting. So first on capacity, jamie wrote, just as airlines trim flying in response to fuels rise, the concern is a meaningful return of growth should fuel continue its descent. A lot of unknowns in that capacity Growth in the current quarter is only 0.6%, followed by 0.3% in the third quarter. And the third quarter is, you know, pretty well baked in. Right. Airplanes, hiring, everything. You're not going to make major changes in that. So, so flat. We haven't seen, you know, major huge cuts as we did in, in previous oil price spikes. So it's been interesting how airlines have managed this and been able to handle it. And largely helped by the ability to raise fares and aggressively raise fares. More pressing, Jamie said, are schedules for the last three months of the year. And you do have the ability to change that going forward, at least right now. So schedules show capacity growth of 3.8% in the fourth quarter. Will it really be close to 4%? And if it is, could that make it hard for airlines to hang on to higher fare levels? Jamie notes that typically reality will produce lower capacity growth because airlines do add flights to schedule to see what sells and then pull out poor selling flights in the months leading up to departure. We've all gotten that, you know, you buy a ticket way in advance, you get the schedule change.
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Yeah.
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So maybe some moderation of the 3.8%. He also notes it's going to be hard for airlines to grow in a lot of places. There are a lot of gate constraints at many airports. There's the shortage of airplanes for various reasons that Willie Walsh talked about at iata. It may be tough, which may be a good thing for for airline profits. A large swath of the industry was struggling with profitability before the Iran war. Frontier and JetBlue haven't posted annual profits since before the pandemic. Alaska has its hands full with integration. Southwest hasn't been growing as aggressively. American struggling with its own profit margin issues. In other words, capacity should be constrained for the rest of the year. Could be constrained for some time, I think, and that should keep fares high and airline results better than what they might otherwise be. Second, the interesting case of Delta, which from Delta, from a Wall street perspective, Delta shares are up 24% year to date, 30% since the start of the war. They've already gone higher than the Wall street consensus target price, which is $83 a share. I think Friday Delta was around $85 a share. So that means either Delta is overpriced or Wall street needs to raise its price target, which means either raising Delta's profit expectations may be hard to do given what oil prices are doing, or raising the multiple you pay for Delta for those earnings. And that's the really interesting idea here. Raising the multiple means treating Delta more like a regular company with consistent strong earnings and less like an airline. And you know, Doug Parker has been advocating for this for a long time and talked about it getting airlines to be investable vehicles. And Berkshire Hathaway has been a bit of a bellwether on this. Right. Berkshire Hathaway is now the third largest shareholder in Delta. So it seems to think Delta deserves more respect on Wall street in the form of higher multiples. Jamie asks whether quote Delta shares are finally beginning to exhibit the RE rating. We've long argued even pre Covid they were due. The truth is he says we haven't reached a conclusion yet. So very interesting. I thought another possibility here is that all airlines are overpriced because of lower oil price euphoria. Right. We see these giant moves, large moves when oil prices drop. Oh, happy days are here again. Well, maybe not. Maybe they're overpriced and a pullback this summer is quite possible. One other thing on the debt side, Mark Streeter upgraded both Southwest and United debt. I thought that was interesting. Most interesting was improved optimism mark had for JetBlue debt. Remember that David Neeleman and others had used the B word in connection with JetBlue bankruptcy. So much so that JetBlue CEO Joanna Garrity had to publicly say there would be no bankruptcy this year. Scott Kirby also noted that a JetBlue acquisition that's been speculated would be very expensive because of JetBlue's very high debt level 9, $9 billion. So Mark noted that the likelihood of JetBlue survival and he put survival in quotes. He means avoiding a bankruptcy organization. That likelihood has increased of survival has increased materially given both the spirit liquidation and the hopeful and to the war as which you could spell as jet fuel relief. He said while we can't ignore the market concern we do believe market sentiment is set to improve over the summer on JetBlue. So very hopeful comments on JetBlue. I just thought that was really interesting. I'm curious what you are seeing in airline schedules for the back half of the year. What what you're hearing from your airlines, Christina?
- [38:26]
A
Well, you know we, we are always looking at schedules that are posted, you know for remainder of the the year next year. We spend a lot of time talking to our airline partners around what they are planning to do. You know last year we had forecast because we spent time with all the airlines and they said we will see 6% increase in flying slash. You know we were, we were expecting a 6% increase in passengers we were down 2%. That's an 8% delta. And that hits budget big time because airlines in airports, excuse me, are basically user fee funded, right? It's the parking and it's the percentage of the McDonald's and it's the rental cars. All that is what allows us to pay our bills. And this year we were forecasting a very modest 1.4% increase and I'm hoping we'll be flat. Candidly, we're seeing some flying get pulled out for just a little bit of third quarter because of fuel prices. Right. So that is, for a market like ours, that's a problem. And, and I, I would say that, that this is the, you know, your comment on there are also gate constraints at many airports. You know, there's, there's a lot of talk these days about infrastructure and a lot of talk about the really big, really big hub airports having capacity constraints in terms of runways, taxiways and, you know, just because they're either constrained physically and they can't expand or because it's so expensive to expand. But the fact is, is that, you know, airlines can charge more and we've seen that when, especially in this round where there's higher prices for baggage. We talked about that last time you and I were on and I know you've had other conversations about it. People are still paying it, demand has held. And one of the ways that you can actually increase the likelihood of no gate constraints is to build more gates. But that also increases competition and a lot of airlines actually don't want that. They don't want to. Some of them do. But depending on the hub airport, you may see gate turns very low. I mean, there's a competition plan that airports used to have to submit every year and now I think you only airports only have to submit it after they sign a new use and lease agreement with the airlines, a new signatory use and lease agreement. So, you know, in my mind, I think we have a huge infrastructure issue, a huge funding issue, and it's something that I think we have to figure out how to pay for so that that cost doesn't get passed on to the airlines and that it is borne by the people who use the system. So there are vehicles to do that. And I think that this is something that we have seen. There's sort of an insatiable demand for travel. People want to get on planes, they need to for business, they want to, for leisure and for all sorts of other reasons. And the more flying that we can do responsibly, the better. The economies do. And I think there's a real opportunity to fix this. I think that airlines are tremendously valuable, as are, as all parts of the system. And the better it can work, you know, the better the ratings can be, the more investable they are, the better we're all going to do. It's a, you know, I don't know. It's my soapbox for today, but it just, it drives me crazy because there's a. There's a way to fix this. There's a way to fix this.
- [42:06]
B
And, and the way is, well, you
- [42:09]
A
have to raise the passenger facility charge that hasn't been raised since the year 2000. And candidly, you know, we, you know, it's $4.50 per segment, up to four segments. And the airlines have argued for years that that would decrease demand. It won't. We've seen it because of what's happened with the unbundling, what's happened with the race, you know, with the increase in bag fees, what's happening with fuel costs getting passed on. It has not decreased demand substantially. And where we see it hit is not in the big markets. It's in the medium and small markets, and those are just as important to the economy as the big guys. So I know that the airlines are against it, but some of them are starting to talk a little bit more candidly about the fact that we've got a whole lot of infrastructure projects going on in this country. And believe me, we are going to look like the bargain of the year because ours are already done. But there's a lot coming that goes to an airline's cost center, and candidly, that can get passed on to the flyer who's choosing the, the fee. And I don't think a $4.50 increase is going to prevent somebody from, from flying.
- [43:17]
B
I'm totally with you. Not that, I mean, I, And I don't. I don't. Yeah, I know. I don't really understand why airlines haven't rethought their position on this. Because it, it is a different economy. I mean, you know, user fees, the demand for travel, the price increases. Yes, you could increase the pfc, and it's not going to, you know, materially affect demand. The, the other thing about it is the airlines are paying these costs, you know, one way or the other. Right. So you can have a $4.50 PFC, but then the cost per employment, you know, maybe in, you know, in your case, 17, but a lot of airports, $30, $40, $50, you know, been estimates LaGuardia is going to go to $100 and LAX and Denver and it's 60. Yeah, yeah, yeah, yeah. I mean, you know, the Burbank is building a, you know, going to open a complete new terminal this fall at much higher cost to airlines. Right. Needed to happen and all of that. So why not pass on more of that cost directly to passengers? I don't know. I would think there would be some thought should go into, hey, wait a minute, maybe we, we should increase the PFC and, and we can.
- [44:44]
A
And then work together on what the infrastructure is. I think that what I, what I used to hear in the old days is, well, if, if we increase the pfc, everybody's going to go build this Taj Mahal.
- [44:54]
B
Yeah.
- [44:55]
A
And the way that candidly you, you get around that is you make sure and, and the airlines have property reps. And, you know, we've been meeting with the property reps at our airport every month since March of 2015 because we wanted to make sure they were incredibly involved in the process and had a say over not only what we were designing, but what we would eventually build and how it would work for them. So, you know, through a majority in interest process or through some sort of ability to have the airlines weigh in, you know, the PFC gives you an opportunity for the airlines to be like, hang on. Okay, if you're going to. Because passenger facility charge can only be used for certain types of projects. They have to, you know, enhance capacity, security. Or there's that little line that says competition. And I think there are some airlines that don't want to see that in some places because, you know, you get more competition, it can lower yield. But for the most part, you know, these, these hubs are set and you're not going to, you know, you're not going to triple the size of Atlanta. And there's room for, there's just room for capacity improvements in the terminals and with some gates that I think will still allow for a robust and healthy airline system and much better coordination with the airports, which I think is a good thing because, you know, there is an opportunity for everybody to do better here.
- [46:24]
B
Yeah.
- [46:24]
A
So let's see what happens with that one.
- [46:27]
B
All right. We have some personnel news this week.
- [46:30]
A
Yeah. Well, the big news is that Steve Johnson, vice chair and chief strategy officer at American Airlines, announced he'll retire at the end of the year. Johnson, a lawyer by training, started in the airline business with leasing company. He joined America west in America West Airlines in 1995 and held various positions, including EVP of corporate. After a stint in private equity from 03 to 09 with airline investor Bill Franke and his Indigo Partners, Johnson joined US Airways and led corporate affairs until being named to his current role in May of 2023. I love Steve. I think he's a great guy. He's always been very nice to me. Steve Johnson has been a key executive at each stage. Stop merging airlines, managing legal issues, guiding all kinds of corporate issues, such as negotiating American's new lucrative deal with Citibank. He's been the big project guy at American, overseeing much of the company's large campus construction. For example, when, when Vasu Raja blew up corporate sales and cost American $1.5 billion in business travel bookings, Steve was the guy sent in to fix it. He's been a stabilizing force, a passionate, smart advocate for the airline and a problem solver. American is going to miss him and so are a lot of us.
- [47:50]
B
Yeah, very, very much, myself included. But I have some concerns about American. I've known Steve Johnson since those America west days in the late 90s. Let me just have great admiration, respect, appreciation for all he did for each airline he worked at and really for the industry as a whole. He had great impact, even though he was often the behind the scenes guy. And I think his departure leaves a big brain power void in the executive suite at American. There are people there who can step up and fill that void. But I think it's going to be really interesting to see how American handles this. So does American replace its number two by naming someone president or by bringing someone from the outside in as a new number two? I don't think I need to remind American, but just in case, Peter Ingram, the former Hawaiian CEO who spent 11 years at American before heading out in the Pacific. Peter's available, so is Jude Bricker. Jude Bricker, very creative. Former CEO of Sun country, which was acquired by Allegiant, so he's now sort of consulting back to Allegiant. But Jude spent two years in American, so not necessarily an unfamiliar face. Or maybe Dave Davis, the former CFO of Northwest. You know, Robert Isom is a former Northwest guy. I don't think they were there at the same time, but that might be an interesting choice. Dave Davis tried valiantly to save Spirit Airlines and I think made a lot of progress. So, you know, he's, he's a talented guy who's out there. So you know all people who are somewhat familiar but, but outsiders I'm not. I'd be interested to see if American thinks there's. There's somebody inside who can step into that role. Or maybe American doesn't replace him at all, huh? Doesn't necessarily have to replace his, you know, title vice chairman and chief strategy officer. It's not like he was managing a lot of stuff there, but, you know, it was sort of a, hey, you handle big problems for us. I don't know. I'm not sure they have to fill that job, although I think they would benefit from having a strong number two. I just think his departure opens up a lot of possibilities at a really crucial time for American. Right. American still has to rebuild its corporate business and try to regain market share in key cities. It still hasn't figured out how to run a more reliable operation compared to its rivals. It's late to the premium party. It's playing catch up on profitability. Its stock has been stuck below $20 a share for the last five years while key competitors have soared. So, in short, American's underperforming. And Robert Isom, the CEO, is under pressure. Some of that comes from his former colleague Scott Kirby, who's kind of tormenting American these days, not just with United's turnaround success, but with overtures to acquire American, which highlights its weaknesses and losses and fosters division between American management and its unions. A lot of change, I think, is likely to happen at American over the next year, and this departure may be the start because it clears a path to new leadership or reorganized leadership if American wants to do that. I think the big question is the if. Do they really want to start making changes or not? One other personnel note, which I think is significant. Alaska promoted Chief Financial Officer Shane Tackett to president. Tackett has spent 25 years at Alaska doing almost everything, finance strategy, commercial labor relations, you name it. I think it just shows what a strong team Alaska has with CEO Ben Minicucci, and they're going to need that strong team as they integrate Hawaiian and compete more globally. And I think interesting to note too, Alaska being so heavily on the west coast, doesn't have the boost from spirits collapse that east coast airlines like JetBlue seem to be getting. So, Christina, anything else from IATA that you found interesting? I'm really curious what the mood was like. I think it's, it's fabulous that you go interesting for an airport to be there. But was this year any different from years past?
- [52:54]
A
I would say it's always interesting. And I'm actually surprised more airports don't go. I mean, we go there to listen. We're not hustling we're not asking people for things. We're listening. We're meeting with folks. We're paying attention to what's happening on a global stage. Sometimes it's really easy, especially for an airport like ours, to be very focused on just a few markets. But you can just see so quickly how integrated this whole system is, how complex it is and how highly interdependent it is. So, you know, we have to be ready for everything. So what I found interesting was Ed Bastian, Scott Kirby, Robert Isom. I don't think Ed was there this year. I think. I know that Scott and Robert were, but they left early. Tim Clark wasn't there. It felt a little less star. Powery. That's what I would say.
- [53:50]
B
Interesting.
- [53:51]
A
Yeah. So. So, you know, it's a. It's a relatively small conference. I don't know, 1200 people, something like that. 1500. But it's. It's intimate in the way that you are sort of around people who have very big jobs and a lot of, you know, a lot going on. And a lot of times it's just. It's just interesting to be around to see who's interacting with who and what's happening. And this year it felt. It just felt a little less publicly attended by some of the. The bigger names. So I know they were there for the agm, and I think Tim Clark was in Berlin. That said, there were. There were a lot of CEOs who did attend, and there was just a lot of really great conversations that went on around what's next, you know, where. Where are. What is going to happen with fuel and what is going to happen with some of the alliances. So I don't. I don't know how to be any more specific than that. I just find the whole thing fascinating. I always appreciate what the IATA staff does to help everybody see what's happening globally. For example, I think Brazil is looking at a 26% tax on tickets. Wow. It's just like. Exactly. And you're thinking, wait a minute, you know, what's happening with regulation around the world and how, you know, the fact that it's happening in one country does not just affect one country.
- [55:21]
B
Anyway, I'm always interested in the alliance stuff because these are. You think a lot of these relationships, you know, they're married to each other, but there's a lot of cheating that goes on.
- [55:37]
A
Oh, 100. And we don't.
- [55:39]
B
Right.
- [55:39]
A
We don't. The general public doesn't see that like those of us, they're having those meetings in, you know, in boardrooms and in separate, you know, separate meeting rooms. So you're not seeing a lot of that, but you can, I don't know, it's just really interesting to see. Yeah, no, he's not gonna hoot.
- [55:56]
B
Yeah, no, I think there, you know, there can be, you know, breakups and other airlines jumping in bed with competitors. It gets really interesting. Before we get to the mailbag, let's take a moment to thank the executive MBA in aviation at the University of Colorado Denver for its sponsorship. 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 soon at Pittsburgh International Airport. Right.
- [56:35]
A
Residency.
- [56:36]
B
Yeah, residency, yes. And they had the week long residency in Washington D.C. so I think you're up next. Students experience a hybrid flexible course structure that balances in person and online classes without career interruption. Go to Business UC Denver to learn more. Just to just show you how involved students are in the business, I gave a speech at the Jumpstart, the Airports Council International North America meeting in Chicago. Two of my students were in the audience. Major figures in the airline industry who were also working on getting their mba. It was, it was great.
- [57:26]
A
Yeah. And I heard all about it. As a matter of fact, that you, that you spoke at that people were very excited to hear from you. And we are up actually next year for the residency. Yeah, yeah. Not this year. Yeah, so good. If we're. Before we get to the mailbag, we should also thank, and very much want to thank RTX for its longtime support of airlines. Confidential. RTX rallies 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 and Whitney and Raytheon to drive progress for generations to come together. RTX pushes the boundaries of known science and finds new ways to connect and protect our world. Visit rtx.com to learn more.
- [58:17]
B
Promotional support provided by the Ultimate Avgeek website, theairchive.net A vast collection of airline memorabilia, timetables, route maps, rare cabin and
- [58:26]
A
airport photos, special flights and more, all@theairchive.net
- [58:30]
B
the hub of air transport history. Okay, in the mailbag. Eric, based in Houston, had a comment on the quality of my audio last week and I know others noticed a difference. Another listener has pointed out quality differences. When I. It turns out it equates with when I use a particular piece of equipment that lets us record two people in the same room. But I've been having issues with it. So normally we are on the zencastr recording platform as you and I are today, Christina, and that works great when two people, three people, four people are in different locations. But we can't do that when two people are in the same room. So when people come to my house to record, as some do, or when I go on the road to sit down with Brian Bedford, for example, we're having this issue. So let me begin with an apology. I'm my own sound guy when recording at my house and I goofed, goofed on a setting on the mixing box last week. Our, our great producer editor Charlie Shapiro did all he could to fix it and Charlie has educated me on my mistake. I hope we have solve that problem. But let me just say we, we know there was a problem and, and, and it's going to be much, much better. Eric's comment. Love the podcast. I listen to it every week on my drive to Houston. Listening to the latest podcast in my car today. And when you talk, it's very loud. When your guest was talking, he was very low and hard to hear for the entire podcast. I had to adjust the volume up and down. Love the show. So again, my apologies to you all for that sound quality issue.
- [60:14]
A
Well, you know, I'm gonna, I, I it sounds like even Eric was nice of him to point it out so that now it can be fixed. But it's clear that he was willing to turn it up and down because there's so much value in, in the show. So I think that's a really lovely candid conversation that he's willing to have. And now you get to fix it and everybody's going to be happy. Okay. On a sweeter sounding note, David from West Hollywood, California wrote to say gentle people, I thought your interview with Glenn Howenstein was terrific. I enjoyed how Glenn could explain complex issues in plain, non corporate speak English. I even had to grab a pen to write down his simple but brilliant premise about the new airline model being in the hospitality business, not the transaction business. On another note, I almost crushed my AirPods during the Brian Bedford interview when he played the Trump sycophant card. But as the interview continued, I realized he's probably the guy to get the job done. Love the show and have adored Scott since the middle seat days. Me too. By the way, am I now a McCartney sycophant? Is that a question you need to answer?
- [61:28]
B
Well, thanks for that, David. I appreciate the Sentiment. But let's not go overboard, okay? Being a listener is more than enough. My gratitude for being a listener. All right, so, Christina, an interesting airport identifier code note from Gerard in Eldersburg, Maryland. Gerard says in episode 337, you discussed the changing of airport codes as related to PBI and the renaming of the West Palm beach airport. Because this is local to me. He said Friendship Airport. Local to him, changed his name to Baltimore Washington International Airport in 1973 and acquired a new code in 1980 when it became BWI. Previously, it was BAL related to this. How many airports are frequently referred to by their airport code rather than their name? Jfk, bwi, lax. Yeah. Are there others?
- [62:32]
A
Eric says yeah, well, there's lots of them. I will say that we just had this comment the other day, this conversation, because we. Because we were coming from iata, and I said, you know, somebody. We were having a conversation about somebody we had seen from Finnair. This guy who used to run cargo, now rounds alliances. Great guy. His name is Freddie. And I said, you know, if we ever get a flight from PIT to hell, then that would be something. And then you start looking it up because their code is H E L. But hold on, there's. There's two. I actually, I would love to see that be, you know, the bridge market for Sioux City, which is sux, to Pit to Helsinki to. Because Helsinki is such a great hub for Asia, to Fu. K, which is in Japan. It's Fuoca. I can't pronounce it. Fukuoka in Japan. So, yeah, there's lots of. First of all, those are some of my favorite. Some of my favorite three letter codes, but most people actually refer to. In the industry, I would say everybody uses the three letter code, but I find more and more people just in general think of it as, you know, pit, not Pittsburgh International Airport. Or people don't. Although Logan in Boston, you know, people say Logan, not bos.
- [63:57]
B
Interesting.
- [63:58]
A
Depends.
- [63:59]
B
Yeah, yeah, that's true. That's true. They say o', Hare. Right. Not.
- [64:04]
A
That's right. Ord. Well, if you're. Yeah, but you call it. You call it Reagan or National, you don't say dca. People say dca. Yeah, it depends.
- [64:16]
B
Yeah. Yeah, but that's more to distinguish it between. I mean, you Certainly don't say IAD much. You say Dulles, right?
- [64:23]
A
No, 100%.
- [64:24]
B
Right. Yeah, yeah, yeah. So I don't know. But I. I do think there's a coolness factor in airport codes that sort of come along, maybe driven by sort of Instagram stuff or whatever. But I mean, like NBA teams, they have city edition uniforms and they're using the, the airport codes. Right. The Phoenix Suns have uniforms and say PHX or PDX in Portland or ATL in Atlanta. You know, Dallas Mavericks use dal, which probably pisses off dfw, but.
- [64:56]
A
Well, that's. Yeah, that's Love Field.
- [64:58]
B
Yeah. Yeah, right there. So I, I don't know. I've said before, my, my favorite bag tag I ever got was one that said CIA, which is Rome Champino. And what are people going to think? Your tag, your bag to CIA on it.
- [65:18]
A
There's a business. Somebody needs to start a website with, you know, bag tags from, with airport codes from around the world. I bet you'd see people buying them. Yeah. Yeah. Anyway, great to talk to you again, as always, Scott. Thank you for.
- [65:31]
B
Oh, Christina, thank you so much. Yes, yes. That's all for another edition of Airlines Confidential. Just terrific to catch up, Christina. Thank you. Thank you so much. I'll be back next week with Dave Hilfman in an interview with the European Airlines CEO that I think should be quite interesting. So, so long, every everyone.
- [65:51]
A
Thank you for listening and have a great week. This podcast is produced by Mass media info@massmedia.net.