Thursday, December 20, 2007


After Lufthansa purchased 19% of JetBlue, one wonders what is next. The Chair of LUV says he is prepared to write a big check. He anticipates consolidation and he expects to be a buyer.

In the meantime, the cash infusion at JetBlue has not solved its problems. JetBlue was late in the game. The deregulation of airlines that happened in 1978 is basically over and done. After deregulation, companies like LUV cherry picked the best routes. They were able to muscle their way to growth because they did not have the heavy cost structures of the "legacy carriers". Today, the "legacy carriers" do not have the heavy cost structures of the "old legacy carriers". Today, the legacy carriers use feeder companies to go toe to toe with the discount carriers but these toe to toe flights give the customer additional benefits. Those who wish to connect or to pick up legacy carrier mileage or to make use of airport club facilities need to book with the feeder flights of the legacy carriers. JetBlue jumped in late a couple of years ago and appeared to be ready to become the next LUV only to find that the profitable model has changed once again.

While the LUV Chair talks about writing a check, the majority of the consolidation so far has been through code sharing agreements. These agreements allow the companies on both ends of long international flights to gain local market share while sharing the international revenue. In domestic markets, the little guys are starting to have a very tough time, but even so they have not welcomed take overs. MidWest fought long and hard to remain independent. It was able to stay semi-independent by allowing Northwest to become an investor. The deal between Lufthansa and JetBlue is a similar attempt by JetBlue to maintain itself as an independent entity.

When these deals are made, flight patterns change. Resources are reallocated so as to limit direct competition with ones "partners". No one would be surprised to see certain MidWest and Northwest routes to be altered after the deal was done. Because each of the legacy carriers is a member of an "alliance", routes are less and less likely to overlap one another.


After congress refused to allow the market to properly price landing rights, the regulation alternative route has moved forward. In the heaviest of markets, such as the New York area, the transportation secretary is working with the industry to limit congestion at peak times. The reported news in this area is all about how the government is granting the use of military air space during holidays. The more important point is that flights in and out of the area will be limited by regulation. When the availability of a product is cut back, the price goes up. For months we have known that over booking and delays in the New York area had to be fixed. In one way or another, the public has to pay the full cost of the service offered. The congress continues to allow the wealthy owners of 20 million dollar jets a cut rate price to land in New York. There is going to be a reduction of service in this area in the short run and in the long run there will be new slots available but at higher prices.


Hillary is still odds on to win the democratic nomination. A lot of ink has suggested that her campaign is in trouble but her national polling numbers have remained pretty steady. Obama may be slightly ahead in Iowa but Iowa is a small drop in a big bucket and a small win in the state will not provide a great deal of momentum. In my opinion, Hillary has been able to run to the right of Obama and Edwards without tying herself down too far to the left. By the time of the general election, she will sound like she is a centrist candidate and may even be able to pull off the trick of Bill Clinton who ran to the right of Bob Dole.

On the republican side, there is a real free for all in the works. New York limousine's for the girl friend and third wife of Giuliani seem to have turned the tide. Giuliani's numbers have been in free fall. The interesting thing is to note who is catching his leaking support. The Huckabee boom was the big winner early. Once Huck jumped into the lead in Iowa, the big media guns started blasting and Huck's momentum has slowed. In the most recent polls, McCain has been the beneficiary. Because Thompson has been on a steady swoon from right after the date of his announcement, Huck, McCain and Romney have all been gaining some ground.

While it is no surprise for South Carolina to support the preacher Huck and the military man McCain, the most interesting turn is happening in Florida. With half of Florida populated by retired people from Jersey and New York, it seems reasonable for Giuliani to enjoy a lead there, however, both Huck and Romney are seeing a major surge of support.

Romney has reportedly spent 10's of millions of dollars in Iowa and New Hampshire. Huck has an 8 point lead in Iowa. McCain is surging in New Hampshire but Romney is almost "playing at home" and is hanging onto a 9 point lead with much of McCain's surge coming at the expense of Giuliani. Huck is likely to win in South Carolina. Again, the Florida numbers are most interesting, it appears that Huck will pass Giuliani in a dramatic fashion, a combo of a surge and a collapse.

Huck would be in great shape with wins in Iowa, South Carolina and Florida, and third place in New Hampshire, Michigan and Nevada. On the other hand, second in Iowa and Florida along with wins in New Hampshire, Michigan and Nevada by Romney could make this a two man race. Romney and Giuliani still have the money edge, McCain has a loyal following and Huck has momentum. I believe that a good percentage of Thompson's supporters are among the anybody but Giuliani crowd. Should Thompson drop out or continue to lose support, I expect Huck will be the prime beneficiary. FAITH FAMILY FREEDOM!