Issue No. 835

Is Premium Leisure the NextBig Thing?Oct 18, 2021

Table of Contents

Weekly Skies 2 .................................................................................................................................................................................

Fleet 10 ...................................................................................................................................................................................................

State of the Unions 13 .................................................................................................................................................................

Routes and Networks 16 ..........................................................................................................................................................

Sky Money 18 .....................................................................................................................................................................................

Landing Strip 19 ...............................................................................................................................................................................

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Is Premium Leisure the Next Big Thing? SKIFT AIRLINE WEEKLY 2021 1

Delta Kicks Off The September Quarter Earnings Season

Pushing Back: Inside the Issue

Delta opened the third-quarter earnings season with confidence. After posting its first

quarterly profit sans government aid since early 2020, the airline is looking to a year-end

holiday bump and then a pick up in business travel in the new year. But CEO Ed Bastian also

pointed out a new emerging trend: premium leisure travel. An increasing number of

holidaygoers are willing to pay extra for the premium seats — whether it's premium economy

or business class — made available by the dearth of corporate roadwarriors who normally buy

up the inventory. Delta bets the trend will continue and is investing in adding more such seats

to its planes.

But while Delta was guardedly optimistic, Southwest spent the week apologizing. The airline

had what some called a "burnout" when it cancelled nearly 2,000 flights over the three-day

Indigenous Peoples' Day holiday weekend in the U.S. The issue was staffing, plain and simple,

and not a rumored pilot sickout in response to Southwest's federal Covid-19 vaccine mandate

that was popularized on social media. Southwest is the latest to join the growing list of U.S.

carriers, including American, Delta and Spirit, that have faced staffing-related operational

snafus as they ramp up their schedules.

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Elsewhere, United has gotten ahead of the FAA by beginning modifications to its Pratt &

Whitney-powered Boeing 777s in the hope of returning the jets to revenue service when the

regulator issues its air worthiness directive. Etihad, Qantas and Volaris all raised recovery

funds, and deliveries picked up at Airbus and Boeing in the third quarter.

The Airline Weekly Lounge Podcast

This week in the Lounge, Madhu and Ned breakdown Delta’s third-quarter earnings, and take

bets on whether premium leisure is the travel trend of the future that CEO Ed Bastian thinks it

is. Also, Southwest burns out and United wants its Pratt & Whitney-powered 777s back for

what could be a blockbuster Summer 2022 across the North Atlantic. Find out in this

week's episode. A new episode of the Lounge drops every week, and you can find the full

archive here.

Weekly Skies

Delta Thinks Premium Leisure Is Here to Stay

Delta Air Lines leadership believes the way people travel has undergone a "structural" change

as more leisure passengers opt to fly in the front of the aircraft. The Atlanta-based carrier is

now planning to fly more premium seats as it plots its recovery from the Covid-19 pandemic.

When the pandemic began and international travel demand collapsed, Delta began using its

large widebody aircraft, designed for international routes and with flatbed seats in their

premium cabins, on domestic routes. These aircraft were not designed to fly shorter routes

and the costs of the domestic network went up. But an unexpected side benefit has been that

passengers opted for and paid to travel in the premium cabins on those routes. This dynamic

has continued even as Delta adds back overseas flying.

In fact, Delta reported that premium revenue recovered 10 percent more than its economy

recovery on domestic and near-international routes to Latin America in the third quarter. The

company expects this dynamic to continue as it adds back transatlantic and longhaul Latin

America routes, and, when Asian countries lift their travel restrictions, on that network as well.

One reason for this could be access. Before the pandemic, leisure passengers who wanted to

fly in the front of the aircraft may have been squeezed out by managed travel and corporate

account travelers who had first crack at booking premium seats. The solution is to add more

premium seats to its aircraft. Delta started the process of adding a third cabin — a distinct

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premium economy hard product — in 2019 and will accelerate that work in the months and

year ahead. "More premium seats is the direction we want ahead," CEO Ed Bastian said

Wednesday during the company's third-quarter earnings call. "It was a big epiphany for us."

And Delta will have the opportunity to do so soon. The carrier announced it is adding two used

Airbus A350s to its fleet in the fourth quarter, although it did not say where those aircraft were

coming from. It has converted options for 55 A321neos to firm orders, with deliveries expected

to start next year and run through 2027. And it plans to add 38 more used aircraft in the near

future.

This is part of its fleet rationalization that began last year when Delta retired about 200

aircraft, including all its Boeing 777s and will focus its fleet strategy on upgauging. By next

summer, it expects half of its narrowbody fleet will be upagauged from before the pandemic,

and widebody aircraft will comprise 25 percent of the total fleet, up 15 percent from 2019.

About 160-170 aircraft that were parked in the desert during the pandemic are expected to

return to the fleet next year, Chief Financial Officer Dan Janki said.

These fleet changes will position Delta for the recovery, which it expects will begin in earnest

next year. The third quarter started off well, but demand started to fall off in August and

September as the Delta variant of the coronavirus (which Delta Air Lines refers to as simply

"the variant") caused outbreaks of Covid-19 throughout the U.S. The airline had expected

business demand to return after Labor Day, but companies delayed reopening their offices.

Given the trend in bookings and the airline's polling of its corporate clients, President Glen

Hauenstein called August and September a "temporary pause."

Still, the airline started the year with capacity at only a quarter of 2019. Now, it's up to 75

percent. Delta expects to fly 80 percent of its pre-pandemic capacity in the fourth quarter of

this year. Business demand is expected to be fully restored by the end of next year.

The story varies by region, however. Domestic network revenues were 72 percent of the third

quarter of 2019, but this was an 17 point improvement when compared with the second

quarter of this year. Latin America routes generated 84 percent of their pre-pandemic

revenues. Transatlantic revenues were 35 percent of 2019, but this surged 20 percent from the

last quarter after the Biden administration announced plans to reopen the U.S. to vaccinated

Europeans. The Pacific network remains a "laggard," Bastian said, due to continued travel

restrictions in Asia. But with vaccination rates approaching 80 percent in the key markets of

Japan and South Korean, he said he is hopeful the Pacific network will revive in the near

future.

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Costs rose by 12 percent to almost $8 billion, due to increased capacity and maintenance costs

associated with bringing back parked aircraft. Delta is seeing lower labor costs, however.

About 20,000 workers retired or left the airline during the pandemic. Their replacements are

new hires, resulting in a "juniority" benefit to the airline, Bastian said, while stressing that Delta

has not changed its pay scale. During the quarter, Delta benefited from $1.3 billion in federal

payroll support, which expired on September 30. The carrier plans to hire pilots, flight

attendants, and maintenance technicians in the next year, but it has not determined how

many new employees it needs.

Delta eked out a $216 million pre-tax profit — its first since the pandemic began in March 2020

— in the third quarter, on revenues of $9 billion. Revenues now are two-thirds of the same

period in 2019, Hauenstein said. The carrier was profitable despite 60 percent of its pre-

pandemic business travelers not traveling during the quarter. The company expects revenues

to approach 80 percent of pre-pandemic revenues by the end of the year. But it expects to

report a modest loss in the fourth quarter, due to rising fuel costs.

Although he is confident the recovery now is enduring, Bastian struck a note of caution about

the pandemic. "We know we are not out of the woods yet," he said.

— Madhu Unnikrishnan

Philippine Airlines Unveils Restructuring Plan

Bankrupt Philippine Airlines will end service to New York and Toronto as part of a rejigging of

its route map under a restructuring plan it filed with a U.S. bankruptcy court last week.

Citing “structural issues impacting profitability,” the Manila-based carrier will end its ultra

long-haul service to New York and Toronto and focus instead on flights to Los Angeles, San

Francisco and Vancouver on the West Coast of North America. PAL outlined plans to expand

its codeshare with American Airlines at its remaining U.S. gateways to maintain connectivity.

PAL will also end service to Manila’s Clark Airport, which is popular with low-cost carriers, and

focus on strengthening its hub at Manila International Airport. In addition, it will also cut

unprofitable routes in Asia.

But the airline does not only plan for cuts. After initially trimming its network, PAL plans to

grow at its "profitable" Manila hub with additional regional Asia service, particularly to China.

This growth will be done largely with narrowbodies, which it deems "lower risk" than

widebodies in its plan. In addition, it hopes to pressure competitors in Manila, including by

potentially squatting on slots by flying them with lower-capacity turboprops.

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“The [restructuring] plan will bring PAL into sustained profitability,” the airline said in the filing.

If approved by the court, PAL forecasts a $220 million operating profit next year and a $364

million in 2023.

PAL filed for Chapter 11 bankruptcy protection on September 4. The surprised few as the

carrier had struggled for years, and the bled through cash during the Covid-19 crisis. At the

time of the filing, PAL had just $28.6 million in unrestricted cash on hand — far less than the at

least $300 million advisers said an airline its size needed to keep flying. However, the filing

came with the support of its creditors who had already agreed to a restructuring

plan framework. PAL said at the time that it hoped to emerge from bankruptcy within six

months.

Under the plan, PAL will remove 21 “surplus aircraft” from its fleet leaving it with just 77 planes

when it exits bankruptcy. Among the aircraft being removed are three Airbus A350s that,

depending on the source, could be its entire remaining fleet of the jet. PAL primarily used the

A350 on flights to London, New York and Toronto prior to the pandemic with the latter two

now being cancelled.

The airline has not placed any new aircraft orders or signed new leases in the month since it

filed for Chapter 11.

The network and other cuts acknowledge a harsh truth for PAL: the airline has lost much of its

home market to more nimble low-cost competitors. Domestically in the Philippines, PAL and

its subsidiary PAL Express saw their combined marketshare shrink 12.5 points from 2012-2019

even as the market grew 44 percent to 29.5 million flyers, according to data from the

Philippines’ Civil Aeronautics Board. During this period, Cebu Pacific solidified its position as

the country’s dominant carrier.

PAL has lined up $505 million in debtor-in-possession financing that will convert to equity

upon its exit from bankruptcy. And it is seeking another $150 million in exit financing.

The bankruptcy court is will hold a hearing on the restructuring plan on November 12.

— Edward Russell

Airlines Bring Back A380s as Longhaul Travelers Return

Singapore Airlines is the latest global carrier to return its Airbus A380s to regular service amid

the pick up in long-haul international travel. With the superjumbo scheduled to return in

November, SIA joins the likes of British Airways, Qantas Airways and Qatar Airways in

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bringing the plane back earlier than previously planned.

SIA will re-introduce the A380 on flights between Singapore and London Heathrow on

November 18, the airline said Thursday. The move is in response to strong demand following

the announcement that the UK would be included in Singapore’s vaccinated travel lane

program, which allows travelers with their Covid-19 jabs and a negative test to enter

Singapore without quarantining, from October 19. SIA’s A380s seat 471 passengers compared

to 264 passengers on the Boeing 777-300ERs that the carrier will replace on its Singapore-

London flights.

Airlines around the world are seeing strong demand for long-haul flights when governments

ease Covid-19 entry restrictions. After the U.S. announced that it would allow vaccinated

travelers in from November 8, several carriers reported triple-digit jumps in bookings,

including an up to 600 percent increase at Virgin Atlantic. Those increases have prompted

airlines to resume suspended flights, especially to leisure destinations, ahead of the year-end

holidays. Reintroducing large aircraft like the A380 is another way to capture the “pent-up

demand” so many industry executives have cited in their recovery outlooks.

The return of the A380 comes after many wrote off the plane early in the pandemic. Amid the

precipitous drop in air travel last year, most airlines around the world put the aircraft — the

largest passenger jet in regular service — in storage with the question of whether they would

ever left unanswered. But in the just the past few weeks, the answer to that question has

proven an unequivocal yes with a spate of service resumption announcements.

BA will bring back four of its 12 A380s on European flights in November to re-familiarize crews,

before shifting the jets to flights to Dubai, Los Angeles and Miami in December. Qantas

has pulled forward the return of five of its 12 A380s to next July with CEO Alan Joyce saying in

August that the carrier expects demand to London and Los Angeles to warrant the extra

capacity. And Qatar, a year after CEO Akbar Al Baker called the A380 the airline’s “biggest

mistake,” plans to return several of its A380s as soon as November to cover for other aircraft

that remain grounded.

“This aircraft could well come into its own,” said Emirates President Tim Clark on the outlook

for the A380 earlier in October. He cited the aircraft’s low carbon emissions per passenger and

ability to fly large numbers of travelers to slot-controlled airports like London Heathrow and

Sydney for his view. Emirates is the largest operator of the A380 with 115 in its fleet.

But the A380s future is far from certain despite its return at more airlines. Air France

and Lufthansa both retired their fleets of the jet citing a need for simplification and efficiency

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during the crisis. And Korean Air Chairman and CEO Walter Cho has cited rising costs as a

result of fewer superjumbos in operation for its plan to retire the fleet within five years.

“Whenever it is not rational anymore, I will look into retiring it,” Cho said of the A380 earlier in

October. Korean Air operates 10 A380s.

The number of A380 flights globally is slowly coming back. Airlines are scheduled to operate

1,605 flights in October and 2,237 in November, according to Cirium schedule data. However,

those numbers are down 84 percent and 77 percent, respectively, compared to 2019.

And at the beginning of October, only 20 percent of the global fleet of the 245 A380s were in

service, Cirium fleet data show.

— Edward Russell

Amazon's Remote Work Policy Could Benefit Regional Airlines

Amazon’s decision to allow corporate employees to work from home may mean diminished

business for its large airline partners, experts warn. But as with consultancy PwC’s own

permanent move to remote work, it’s likely the tech giant’s corporate travel volumes will be

redistributed more than reduced. And that’s good news for regional airlines.

A company of Amazon’s size can’t really implement an unwieldy blanket policy, so it’s giving

teams the power to decide how many days will be needed.

“For our corporate roles, instead of specifying that people work a baseline of three days a week

in the office, we’re going to leave this decision up to individual teams,” said CEO Andy Jassy

last week.

But don’t expect a rush to Costa Rica just yet. “At this stage, we want most of our people close

enough to their core team that they can easily travel to the office for a meeting within a day’s

notice,” Jassy said.

Even a slight change in working patterns could impact the airlines in the region. Amazon is

the largest employer in the state of Washington, with 80,000 employees. In a ranking of

the biggest corporate travel programs in 2019, it spent $500 million on flights in the U.S., not

that far behind Deloitte, which spent $583.1 million.

And let’s not forget it saved at least $1 billion in travel and related expenses during 2020, due

to coronavirus putting the breaks on business travel. “This had a major impact on Seattle-

Tacoma International Airport, hotels, and the two main airlines, Alaska Airlines and Delta,”

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said Mark O’Brien, managing partner of Avenue 5 Consulting.

With new working habits and more virtual meetings, we shouldn’t underestimate another

ripple effect.

“Alaska Airlines may need to look at adding new routes to its network if some key locations are

identified with higher concentrations of relocated HQ workers,” said Ryan Hohag, director,

global air practice at Advito. “However, a more likely scenario is broad fragmented demand

which Alaska could address by bolstering its partnership with American Airlines — enhanced

benefits, more codeshare routes.”

One beneficiary could be regionals like SkyWest Airlines, which has predicted the post-

pandemic economy will be tied to the small communities.

“Out in the west, there’s a massive exodus out of California,” said Chip Childs, CEO of SkyWest

Inc., which operates small jets for Alaska, American Airlines, Delta and United Airlines.

“It’s going into all the small [and] mid-sized cities. And all of this new market scenario post-

pandemic where people want to live and work is going to completely change the dynamics of

what regionals can do going forward … Demand for regional aircraft is going to increase,” he

added, speaking at the end of September.

Meanwhile, the extra flexibility could simply lead to more urban migration.

“My guess is [employees] may relocate from inner city locations to nearby suburbs or rural

areas that are less expensive, but still near the office so a flight won’t be necessary,” said Lisa

Lacey, managing consultant at Advito.

At the same time, some might decide to relocate from expensive San Fransisco, Los Angeles

or San Diego living areas to Denver, Dallas or Phoenix where the cost of living is less, but they

still have access to major airports, she added.

More announcements are likely to follow, and not just from technology firms but other

industries too, leading to more regional alliances and a major corporate travel supply chain

shake-up.

— Matt Parsons

In Other News

The U.S. set a date for its reopening to vaccinated travelers: November 8. Airlines arealready eager the the expected surge in international flyers, especially from Europe where

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restrictions have limited travel for more than 18 months. British Airways CEO Sean Doylecalled the date a "pivotal moment" in the travel recovery.

Despite a Delta variant slowdown in September, American is forecasting "robust peak"period travel — in other words the Thanksgiving, Christmas and New Years holidays — inthe fourth quarter. That has the carrier planning to fly more than 88 percent of its 2019capacity during the period. In the September quarter that just wrapped, American'srevenues came in roughly a quarter below two years ago, and it forecasts a net loss of$620-674 million excluding special items, which include the last benefits of the federalpayroll support program. Unit costs excluding fuel and special items were up 10-11 percentyear-over-two-years, while fuel expenses have yet to register the run up in Brent crudeprices with only a 2 percent increase versus 2019 to an average of roughly $2.08 per gallon.

And across the Atlantic, EasyJet is similar optimistic for the December quarter, or the firstquarter of its 2022 fiscal year. The British discounter plans to fly 70 percent of itsDecember quarter 2019 capacity this year — a 12 point increase from the Septemberquarter — and CEO Johan Lundgren said in an investor update last week that the"recovery is underway" with business travelers returning. The recovery on UK andEuropean routes is the most robust, while travelers are returning more slowly tointernational routes outside of the EU. EasyJet forecasts a £1.14-1.18 billion ($1.5-1.6 billion)loss during its 2021 fiscal year that ended in September.

The New Zealand government has extended its Maintaining International Air Connectivity(MIAC) scheme for Air New Zealand. The airline forecasts NZ$150-170 million ($104-118million) in revenues from five-month extension through March 2022. The programsupports Air New Zealand flying a regular schedule in order to maintain passenger andfreight connectivity to select international destinations, including Hong Kong, LosAngeles, Shanghai and Vancouver.

Domestic travel is recovering, but more people report planning an international trip nextyear, Expedia Group research shows. London, Rome, and Paris are the top destinationssearched for on Expedia for next year, while Cancun topped the list this year. The bookingwindow remains short, however, at about 60 days though searches for travel 180 days outare increasing. Fares remain low, with the average U.S. ticket costing $371, compared with$467 in 2019. The gap between premium fares and economy fares is narrowing, withpremium fares now 288 percent higher than economy, compared with 430 percenthigher in 2019, Expedia data show.

Gol looked pretty bullish in a recent investor update. The Brazilian carrier said unitrevenues were up 5 percent year-over-year and reported a 48 percent increase in dailysales from the second quarter of this year. Meanwhile, unit costs fell by 11 percent. Thecarrier is operating 84 percent of its routes and 66 percent of its fleet, or 76 aircraft. Golplans to increase fourth-quarter capacity by 30 percent over the third quarter.

Latam Airlines Group is seeking yet another extension to the deadline of its exclusiveperiod to file a restructuring plan with a U.S. bankruptcy court. The airline wants just over

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Is Premium Leisure the Next Big Thing? SKIFT AIRLINE WEEKLY 2021 10

another month to November 26.

— Edward Russell & Madhu Unnikrishnan

Fleet

United Begins 777 Engine Modifications

United Airlines has begun modifications to its fleet of Boeing 777s with Pratt & Whitney

4000-family engines that have been grounded since an engine failure over Denver in

February.

The Chicago-based carrier, in collaboration with Boeing, has begin modifications to the aft

bulkhead of the inlet cowl, United Senior Vice President of Flight Operations Bryan Quigley

told pilots in an internal newsletter on October 6. In an unusual move, the work is being done

ahead of an U.S. Federal Aviation Administration (FAA) airworthiness directive, posing some

risk of the final mandate not matching the the work undertaken by United. Quigley

acknowledged this and said the airline is “over-communicating” the work it does with the

regulator.

“We need to work ahead of the regulatory action in order to be able to return a large number

of the aircraft back to the operation as quickly as we can,” said Quigley, shedding light on why

the carrier is taking the risk of possible additional modification work.

The Wall Street Journal reported in August that the FAA was unlikely to re-certify 777s with

PW4000 engines until early 2022. The regulator was expected to mandate additional

inspections and approve a proposed Boeing modification to the engine cover to prevent it

from coming off in the event of a failure.

United has parked its 52 PW4000-powered 777-200s — more than 70 percent of its 74-aircraft

strong 777-200 fleet. Many of those aircraft are configured in a high-density layout for the

airline’s Hawaii and hub-to-hub domestic flights that, without the jets, has put it at something

of a capacity recovery disadvantage to its competitors as travelers — particularly domestic

ones — have returned in droves.

The grounding contributed to “lower stage length and lower gauge versus 2019” in the second

quarter that resulted in higher-than-forecast unit costs, Chief Financial Officer Gerry

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Laderman said in July.

“We’d like to see those aircraft back up in the air sometime late this year, early next year and

be ready for full flying by the spring of next year when we believe that Europe is going to be

fully open for business,” United Chief Commercial Officer Andrew Nocella said of the 52 777s in

September.

All PW4000-powered 777s globally have been grounded since the engine failure on a United

jet scattered debris over Denver almost eight months ago. No one was injured and the aircraft

only sustained minor damage, but the FAA quickly moved to ground the jets

and mandated emergency inspections. The National Transportation Safety Board (NTSB), in its

preliminary report in March, found evidence of fatigue fracture on one of the two fan blades

that broke off from the engine.

Other areas of focus for United to return the 777s to the skies include ultrasonic and thermal

acoustic fan blade inspections, inlet cowl and fan cowl thermography inspections, and inflight

fire modifications, said Quigley. He did not say which of these steps were completed and

which still underway.

— Edward Russell

Aircastle Sees Strong Narrowbody Demand

Lessor Aircastle is putting more strength in its narrowbody orderbook, adding Airbus

A320neo, Boeing 737 Max and Embraer E-Jet-E2 aircraft to its fleet as it bets that longhaul

demand will not return for a couple of years.

CEO Mike Inglese believes widebody prices will remain depressed at least until 2023, and

possibly into 2024. Although transatlantic demand could start to rebound next summer, many

Asian countries retain their travel restrictions with no clarity on when they might reopen. This

could push the international travel recovery to 2024, he said. "The Covid-19 crisis impact on

aviation is not over and will continue in the near term," he said last week on the company's

quarterly earnings call.

But there are signs of hope. North American summer demand almost matched 2019 levels.

And in recent months, demand in Europe, China, Brazil, and Mexico has come back strong.

"It's now been demonstrably proven that air traffic rebounds where vaccine rates are high,"

Inglese said.

Deferrals also have slowed down. As of October 8, Aircastle had $102 million in deferrals from

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20 airlines, but this is fewer than at the depth of the pandemic. Aircastle is using the

opportunity to renegotiate lease terms for those carriers, Inglese said.

One area of undisputed growth is cargo. Lessor Avolon signed a deal with IAI for 30 Airbus

A330 freighter conversions. Inglese said Aircastle is exploring the conversion market and

would consider A330, A321, and 737 conversions. But he added that Aircastle is not interested

in 747 conversions.

Aircastle reported $10 million in net income on revenues of $158 million. At the end of the

quarter, Aircastle had 255 aircraft in its portfolio, down from 273 at this time last year.

— Madhu Unnikrishnan

Boeing, Airbus Deliveries Point to Recovery

Both Boeing and Airbus released their third-quarter order-and-delivery statistics, and what a

difference a year makes. At this time last year, both airframers were reporting record-low

deliveries as airlines balked at adding to their fleets amid Covid-19 uncertainty and a collapse

in demand.

The change was particularly notable at Boeing, which last year still was grappling with the

grounding of its best-selling jet, the 737 Max. The delivery picture changed after the FAA

approved the type’s return to service last December, and regulators around the world have

followed suit over the course of this year (with the notable exception of China and a few other

holdouts).

Last year, the airframer delivered just three 737s and 28 aircraft in all in the third quarter, with

the 787 being a standout at 13. This year, the picture is reversed. Boeing delivered 66 737s in

the third quarter and no 787s, as the FAA investigation into the type’s problems continues.

Boeing delivered 85 aircraft in all during the quarter and 241 aircraft in the year to date, more

than double last year.

Airbus reports its figures monthly. It has delivered 424 aircraft this year so far, compared with

341 for the same period last year. Deliveries began ramping up in the fourth quarter of last

year and continued that trajectory this year. In September, Airbus delivered 40 aircraft, half of

which were A320neos.

— Madhu Unnikrishnan

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Fleet Briefs

Amazon has a solution for the slowdown plaguing maritime shipping: Buying more airfreighters. The company is said to be eyeing Boeing 777-300ER and Airbus A330freighters, Bloomberg first reported. The company now has 76 freighters, a mix of 767sand 737s, in its fleet. Amazon declined to confirm its plans to Airline Weekly.

— Madhu Unnikrishnan

State of the Unions

Southwest's Meltdown

As last week went on, Southwest Airlines began to climb out an operational meltdown that

started during the Indigenous Peoples' Day weekend, after cancelling close to 2,000 flights in

a three-day period starting. The carrier said a combination of bad weather, air traffic control

issues, and larger staffing problems caused the cancellations, which rippled through its

network over the weekend, leaving tens of thousands of passengers stranded all over the

country.

But one thing both the airline and its pilots union, the Southwest Airline Pilots Association

(SWAPA), agreed on is that a pilot walkout was in no way responsible for the meltdown.

Conservative media over the weekend suggested that SWAPA, upset about the carrier's

vaccine mandates, was calling in sick to snarl the airline. "SWAPA is aware of operational

difficulties affecting Southwest Airlines today due to a number of issues, but we can say with

confidence that our pilots are not participating in any official or unofficial job actions," the

union said in a statement. "Our pilots will continue to overcome [Southwest] management’s

poor planning, as well as any external operational challenges, and remain the most productive

pilots in the world."

The pilot sickout storyline became a fixture on right-wing media and on Twitter after SWAPA

sought a temporary restraining order to stop the vaccine mandate last week. Southwest,

which is a federal contractor through its participation in the Defense Department's Civil

Reserve Air Fleet, said it had to comply with the Biden administration's vaccine requirements

for federal employees. The pilots union balked, however. The union is not opposed to

vaccinations, it said, but it believes that the issue should have been negotiated with pilots.

Southwest's mandate "ignores our [collective bargaining agreement]," adding, "We will not sit

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idly by while the company blatantly ignores our legal right to represent [pilots]."

SWAPA's views reflect those of the national Air Line Pilots Association (ALPA), which supports

vaccines but believes mandates should be negotiated with pilots, possibly in exchange for

other benefits.

Southwest blamed its flight cancellations on bad weather and air traffic control problems in

Florida, but the Federal Aviation Administration almost immediately said it had no staffing

issues at its facilities and weather did not affect other airlines in anything approaching the

magnitude Southwest reported.

Southwest was fully staffed to handle holiday weekend travel, Executive Vice President of

Daily Operations Alan Kasher said in a memo to employees, but it did not have the reserve

staff on hand to staff for unforeseen weather disruptions. "And as we’ve seen before, an

unexpected number of delays ultimately leads to a staffing shortage, and at times, mandatory

overtime because of the longer operating day," he wrote in the memo. "Although we’ve made

schedule adjustments leading into the fall, our route system has not fully recovered— that will

take time."

Kasher surfaces to problems that plague the industry as it tries to climb out of the pandemic.

First, Southwest, like most airlines, has slashed its schedule and network. Before the Covid-19

pandemic, the carrier could have resolved an operational snafu by putting passengers on later

flights to their final destinations. With fewer flights, that option did not exist. And this is

expected to continue. In a recent regulatory filing, Southwest trimmed the number of flights it

will operate in the fourth quarter, given ongoing softness of demand and to grapple with

operational difficulties. "We still find ourselves with fewer frequencies between major airports

to reroute delayed or cancelled customers," Kasher said in his memo.

The second issue Kasher referred to is one that affects the economy more broadly: Staffing

shortages. Southwest did not furlough any employees during the pandemic, but it offered

voluntary buyouts and extended leaves of absence in reaction to the collapse of demand

earlier in the pandemic. As demand begins to return, the carrier is struggling to fill thousands

of positions, competing with the likes of Amazon for entry-level workers. Incoming CEO Bob

Jordan said Southwest now gets about 14 applications for every open position, compared with

more than 40 before the pandemic. When background checks and eligibility are factored in,

the pool of available workers shrinks even further. And, entry-level airline work is no picnic: As

Sun Country CEO Jude Bricker recently pointed out, even at the best of times it's a tough sell

to work outside in Minneapolis in January.

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Cowen & Co. analyst Helane Becker noted that this issue is industry-wide. Cargo-only airlines

saw job growth during the pandemic, as demand for freight outstripped all expectations. But

even they struggle with staffing, as FedEx recently said when it reported that it has to divert

600,000 packages a day due to worker shortages. When cargo airlines are excluded, the

number of airline employees has fallen by more than 27 percent — more than 160,000 jobs

— since March 2020.

American Airlines, Spirit Airlines, Delta Air Lines, and Southwest all struggled at various

times in recent months with staff shortages, resulting in thousands of cancelled flights as the

effects rippled through their networks. The issue is one with no easy solution. Many airline

employees — pilots, flight attendants, and maintenance technicians included — are highly

trained and require licenses to do their jobs. Replacing those workers is not easy and takes

time, and airlines are competing not just among themselves but with other industries that

could pay more for those skills.

Southwest's labor woes compounded over the weekend when crews bumped up against

their federal duty-time limits, with no reserve crews to relieve them. The airline was not able to

source hotel rooms for many crew members, resulting in further delays. "These challenges put

pressure on our crew member regulatory and contractual limits, which in turn becomes a

staffing challenge — leading to higher than expected cancellations," Kasher said.

Southwest is slowly returning to normal. "Today's operation has vastly improved from the

weekend, with a much smaller number of cancellations linked to our weekend recovery

efforts," a spokesman for the airline said.

— Madhu Unnikrishnan

Labor Briefs

Icelandair is in the midst of a public-relations maelstrom after its baggage-handler unionobjected to the firing of one of its members, who also happened to be a unionrepresentative. The union called the firing a violation of Iceland’s labor laws and hasvowed to take the carrier to court, while also carrying out a media blitz to publicize thematter. The carrier has been embroiled in a quite a bit of personnel turmoil recently, asboth its chief commercial officer and chief operating officer left in the span of a month.

— Madhu Unnikrishnan

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Routes and Networks

More Transatlantic Leisure Coming in 2022

United Airlines is making a bet on the next big leisure destinations across the Atlantic. The

Star Alliance carrier will add five new destinations — Amman, Jordan; Bergen, Norway; Azores,

Portugal; and Palma de Mallorca and Tenerife, Spain — plus three new transatlantic routes to

its map from May. The additions come as the airline continues to forecast its "best," in the

words of CEO Scott Kirby, summer ever across the North Atlantic in 2022. The U.S. will reopen

to vaccinated travelers from Europe and elsewhere on November 8, which sets the industry

up for a strong peak season next year.

United will connect Amman to Washington Dulles; and Bergen, Palma de Mallorca, Ponta

Delgada and Tenerife to Newark. The flights will be flown with a collection of Boeing 737 Max,

757, 767 and 787 jets. Asked about the holiday-oriented additions, United Senior Vice

President of International Network and Alliances Patrick Quayle spoke of "layering" more

leisure flying on the airline's strong business network, as well as opening the next potential

hot destinations in Europe for American travelers. Even Amman, according to Quayle, has a

potentially untapped leisure demand in the U.S.

In addition to the new dots, United will add new nonstop flights between Chicago O'Hare and

Milan Malpensa, Denver and Munich, and Washington Dulles and Berlin for Summer 2022.

And six previously announced — but never flown — routes will also launch: Chicago to Zurich;

Los Angeles to Tokyo Haneda; Newark to Nice and Tokyo Haneda; San Francisco to Bangalore;

and Washington to Tokyo Haneda.

“We really are the flag carrier for the United States," said Quayle.

— Edward Russell

Route Briefs

Less than a month since Avelo Airlines landed in Las Vegas, the startup is adding a thirdroute from Sin City. It will connect Las Vegas and Fort Collins, Colo., twice-weekly fromDecember 15. Avelo also serves Eureka and Sonoma County, Calif., from Las Vegas.

Delta Air Lines is betting on both leisure and business travelers to support three newroutes to Panama City, Panama. The carrier will connect Panama City with Los Angelesand Orlando from December 18, and with New York JFK from December 20. Delta willhave its work cut out for it: Panama City's hometown carrier Copa Airlines flies all threeroutes multiple times a day, including up to five daily frequencies to New York, Cirium

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schedules show.

Fiji Airways plans to resume flights to the U.S. on November 30, but only for fullyvaccinated passengers. The carrier plans to begin daily service to Los Angeles, five-times-weekly service to San Francisco, and twice weekly flights to Honolulu. Travelers mustpresent proof of vaccination and a negative PCR test taken within 72 hours of departure.The country was effectively closed for almost two years and now says it will have all of itsworking population vaccinated by the time travel resumes.

Fly Play is beginning to firm up plans for Summer 2022, when CEO Birgir Jónsson seesthe startup stepping out of its "warm up" phase. The airline will add Gothenburg, Sweden,and Stavanger and Trondheim, Norway, to its map with twice-weekly service from May.The new destinations come as the industry awaits Play's first U.S. service that is also due tolaunch next spring.

Ryanair continues to fill out its map this winter. The carrier will connect Derry andManchester thrice weekly, and Leeds-Bradford to Poznan, Poland, twice weekly in itswinter schedule. Ryanair's winter 2021 schedule begins at the end of October.

Singapore Airlines is adding Vancouver to its map, and resuming flights to Seattle,following the inclusion of Canada and the U.S. in its namesake country's quarantine-free"vaccinated travel lane" program. The carrier will offer Singapore-Vancouver-Seattle flightstwice weekly with an Airbus A350-900 from December 3 through February 15. SIAsuspended service to Seattle in April 2020.

Spirit Airlines will add Ponce, Puerto Rico, to its map in February. The discounter will offerdaily service to Orlando, one of its newest bases, from February 16. Spirit will give JetBlueAirways its first competition in Ponce, which is located on Puerto Rico's southern coast, inat least a decade.

Swiss will add Beirut to its map this winter. With an eye on visiting friends and relatives(VFR) traffic, the Lufthansa Group carrier will connect Zurich and the Lebanese capitaltwice-weekly from December 2 through March. Flights will initially be flown by Swisssubsidiary Edelweiss Air before switching to Swiss aircraft in January.

Transavia France is expanding its offering of sun spots to French holidaygoers this winter.The Air France-KLM budget arm will connect Nantes with both Lanzarote andFuerteventura from December 18 to March 26; and Paris Orly with Boa Vista, Cape Verde,weekly from December 17 to March 18.

— Edward Russell & Madhu Unnikrishnan

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Sky Money

Qantas Sells Land for Cash

Etihad Airways has closed a $1.2 billion loan linked to its environmental, social andgovernance targets. The financing, which Etihad touts as the "first sustainability-linked"loan in global aviation, is tied to its carbon emission reduction targets, socioeconomicprograms including the upskilling of Emirati women, and corporate governance practices.The airline did not disclose pricing or maturity for the transaction. HSBC and First AbuDhabi Bank were joint structuring banks.

The Lufthansa Group has repaid €1.5 billion ($1.7 billion) in Silent Participation I aid fromthe German government following the successful closure of its €2.1 billion capital increase.The payment was made earlier than expected with the group planning to pay back the €1billion Silent Participation II — its last outstanding German state aid — by year-end.

Qantas Airways has agreed to sell 34 acres of land in the Sydney suburb of Mascot forA$802 million ($595 million). Proceeds from the deal will be used to "reduce debt andaccelerate the airline’s recovery." The property deal, one of many unique ways airlineshave raised cash during the crisis, is expected to close early in the new year with the fundscontributing to the second half of Qantas' 2022 fiscal year that ends in June.

Apollo Global Management will no longer be the majority owner of Sun Country Airlinesafter a sale of up to 9.78 million shares that launched last week. The private equity firm willsell 8.5 million shares with a 30-day purchase option of another 1.28 million shares in theMinneapolis-based carrier. Gross proceeds from the sale could top $318 million at thepurchase price of $32.50 per share. Following the sale, the firm will maintain a stake in SunCountry but no longer hold a majority of shares or voting power in the airline. Apollobought Sun Country in 2018 and then took it public in a successful IPO this March.

As part of the sale, Sun Country provided an update on its third quarter results. Revenuesat the hybrid carrier, which operates scheduled and charter passengers flights, as well asfreighters for Amazon, are forecast to be flat to up 2 percent compared to 2019 at $172-175million. It anticipates an operating profit of $20.5-23.5 million, double its operating profittwo years ago.

Volaris has raised Mexican peso 1.5 billion ($73 million) from the sale of asset-backed trustnotes, or certificados bursátiles fiduciarios. The notes carry an interest rate of 200 basispoints over Mexican base rate TIIE, and mature in five years. Proceeds will be used for theairline's growth. The notes are backed by future collection rights on sales through creditcard processors.

— Edward Russell

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Landing Strip

United, Dulles Airport Talk Overdue Concourse Upgrades

United Airlines and the operator of Washington Dulles International Airport are in talks over a

potential multi-billion dollar upgrade that could see the airport’s widely derided Concourse

C/D finally replaced.

The project, which Metropolitan Washington Airports Authority (MWAA) CEO Jack Potter said

is in a “conceptual” phase, would replace the 46-gate C/D facility with a modern structure in

phases.

“As proud as we are of Dulles, it was never designed for what it’s doing today,” United CEO

Scott Kirby said earlier in October. The C/D facility was built as two temporary concourses in

the mid-1980s and connected near the end of that decade after United established a hub at

Dulles. Various crises, including the 1990-91 recession, 9/11 and the Great Recession, limited

both the airline and the airport’s ability to replace the concourses.

The works would build on the proposal for a new roughly 535,000-sq.-ft concourse south of

the existing Concourse C designed to replace a regional aircraft facility on Concourse A.

Virginia environmental authorities signed off on the regional gates replacement in July.

That aging C/D concourse has made Dulles, which is United’s sixth largest hub by both flights

and seats, the most in need of a facilities upgrade among its large bases. And almost every

other one of its hubs is getting an upgrade: Chicago O’Hare is working on a new Global

Terminal and satellite concourses for United; Denver is building new gates and reconfiguring

its terminal; Houston Bush Intercontinental is getting a new international terminal; Los

Angeles recently approved plans for a new Terminal 9; and United is scheduled to move

into at least 10 gates in the new Terminal A at Newark Liberty in April. San Francisco put plans

to update Terminal 3, which is home to United’s hub there, on hold during the pandemic and

work has yet to resume. Only Guam has no immediate facility update plans.

The issue at Dulles is replacing Concourse C/D economically. Costs have long been an issue

with then-United CEO Jeff Smisek saying in 2013 that the airport’s high costs and debt burden

made it “more difficult to do business here compared to other hubs.” The average cost per

departing passenger at Dulles peaked at $26.55 in 2014 and, through a variety of efforts by

MWAA, airlines and Virginia, fell to $14.93 in 2019.

“[We] have to figure out how to do it and not destroy the economics of the hub — they built a

beautiful facility in Pittsburgh and there’s no hub there anymore. So we’ve got to do it

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smartly,” said Kirby echoing Smisek’s sentiment. Pittsburgh opened a midfield

terminal designed for a US Airways hub in 1992 only to see the hub close in 2004 due to what

the airline said were elevated costs.

Kirby described the discussions with MWAA on a new concourse as “great,” and added that he

discussed the potential project with Potter at a meeting in September.

One funding possibility is the pending $1 trillion bipartisan infrastructure bill in Congress.

Passed by the Senate but awaiting a vote in the House, the bill provides $25 billion for airports

across the U.S. If passed, MWAA could seek funds for a new concourse at Dulles.

“It would help,” Potter said of the possible federal funds at the dedication of new facilities at

Washington Reagan National Airport on October 13. But he added that the funding would be

“about $125 to $150 million per airport and we’re talking about a multi-billion dollar project.”

United has shown no intention to shrink at Dulles. Departures are scheduled to increase

nearly 2 percent in October compared to two years ago, though the number of seats are down

nearly 8 percent, according to Cirium schedules. And the airline has added — or will add

— new nonstop flights to Accra, Ghana, and Lagos, Nigeria, from the airport this year, and

plans new service to Berlin and Amman, Jordan, in 2022.

During first seven months of 2021, Dulles handled 6.9 million passengers, a 32 percent increase

compared to 2020 but still down 51 percent from two years earlier, according to MWAA data.

Dulles "is the open scene that many people see when they come to the nation’s capital from

around the world," said Kirby. "We’d like to see that improved.”

— Edward Russell

Airport Briefs

The Port Authority of New York and New Jersey has put work on the controversial AirTrainto New York's LaGuardia Airport on hold. The move follows a request by New YorkGovernor Kathy Hochul to review the $2.05 billion project and thoroughly evaluate othertransit improvement options to the airport. Pushed by former Governor Andrew Cuomo,critics have called the project the "wrong way" AirTrain due to its routing betweenLaGuardia and a regional rail station to the east, or the opposite direction of Manhattanwhere most travelers are bound. Construction was scheduled to begin this year with thepeople mover slated to open in 2025.

Officials gathered last week for a ceremonial dedication of two new security checkpointsat Washington Reagan National Airport. The checkpoints, which will allow the airport toconnect the four concourses in Terminal B/C/ inside security, will open on November 9.

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They are the last major piece of the $1 billion Project Journey works that included the new14-gate north concourse that opened in April. Operator the Metropolitan WashingtonAirports Authority (MWAA) CEO Jack Potter said he expects another a year of work afterthe checkpoints open to reconfigure the airport's concessions in order to add more gate-side seating for flyers.

Officials broke ground on a new terminal at Pittsburgh International Airport last week.Part of a $1.7 billion modernization plan, the works replace the existing terminal buildingand underground people mover with a new terminal adjacent to the existing midfieldconcourse. The project will shrink the terminal footprint while updating the airport'sfacilities that date to 1992 for future demand.

— Edward Russell