United applies for Washington-Beijing

[Cosmo]

Cosmo, do you think for a minute that AA did not know exactly what it was doing when it filed the proposed change? it was not an "outrageous" move, it was carefully calculated. Of course, the company knew that changing the proposed route after the fact would eliminate them from the selection. It's called office politics.

Jim:

Point taken. I guess when I used the term "outrageous", I was assuming that at least some folks at AA really thought that the DOT wouldn't object to their changed proposal submitted so late in the decision-making process. I was stunned by what I perceived to be some pretty breath-taking chutzpah on AA's part. But in retrospect and looking at the bigger picture, I agree with you that AA's management could simply be playing a game of "blame the pilots" if they failed to win a route award that IMHO they weren't likely to get in the first place.

 

[Cosmo]

I almost always agree with Cosmo and nearly always agree with Jim. But in this case, I gotta agree with Jim. IMO, CO has been the front-runner in this race for over two years now (since the day it was awarded the 2005 EWR-PEK route and AA was awarded ORD-PVG for 2006). Soon as I read that decision I guessed that CO would get the complementary route it now wants: EWR-PVG.

I too thought that Continental would receive this route award, until last summer when two mildly startling events occurred: (1) United applied for the IAD-PEK route rather than the SFO-CAN route it had sought in the previous China route case (and the route that most observers, including me, thought United would seek again); and (2) China Eastern announced that it would be starting nonstop JFK-PVG service last month before Continental could even be chosen to begin its own new EWR-PVG route. IMHO, those events changed the market dynamics to the extent that I don't believe the DOT will award a route to Continental that would become the fourth nonstop service in the broader New York-China market when it could otherwise approve a new China service at a new nonstop gateway (IAD). Let's also not forget the political appeal of a nonstop route linking what many consider to be the two most important capital cities of the 21st century.

And finally, I was struck by a comment from a Chinese supporter of United's proposal that the Chinese would view an award of valuable route authority to United for new nonstop IAD-PEK service linking the two country's capitals as a great honor. Now, I'm certainly no expert on Chinese culture so I don't know if this claim is accurate or not (and even if it is, whether it should have any decisional weight with the DOT), but it does make one wonder, at least a little bit, whether such a relatively inconsequential act in the grand scheme of world events could have a beneficial impact on broader nation-to-nation relationships.

AA, knowing that the DFW-PEK application was a clear loser from the beginning, had nothing to lose by amending its app last month after failing to reach agreement with the pilots, setting the stage for laying blame at the feet of the APA when CO is awarded its new route this week or next. That way, AA wouldn't have to admit that it screwed up by not applying for ORD-PEK (which would have been a competitive application, IMO). Competition with UAL worked when AA got ORD-PVG, and it would have been a good idea for AA to ask for ORD-PEK as well.

I agree with all of the above except the "when CO is awarded its new route this week or next" part.

UAL may get its IAD route, but my money is still on CO.

Well, I still think the route will be awarded to United for IAD-PEK service for the reasons that I mentioned above and in my rather lengthy post yesterday, but we should know for sure one way or the other in a few days (he said hopefully ).

 

[ClueByFour]

Now, if you were able to explain why the US has not had a competetive five speed diesel sedan on the market. Honda is full apace with this in the UK and last year I drove a Peugot 6 speed diesel that was indeed a fine automobile.... Is it the preference for automatic transmissions in the US that avers drivers to such an arrangement or is the price differential between normal petrol and diesel not competative?

OT: combination of the following:

1. Vast preference for automatic transmissions in the US. The vast majority of cars (even relatively small cars by US standards) go out the door with an automatic. The exception to this is high performance sports cars, but even a large percentage of those are now coming with an automatic.

2. Lack of truly clean diesel until, for all intents and purposes, this year. The "ultra low sulfur diesel" in the US was not mandated until sometime in 2006. Prior to model year 2007, any diesel engine (and emissions backend) for a US model automobile had to cope with a significantly higher sulfer content. That will no longer be true (ergo, any engine produced for the diesel available in the US will now be able to run on diesel available in Europe).

3. As dumb as this seems, diesel is not universally available at petro stations in the US. There are many stations, particularly away from where heavy duty over-the-road trucks operate where diesel is not available at the pump.

The forecast for 2007 indicates that in an interesting twist of irony, Honda, Nissan, Subaru, Toyota, and others expect to actually start importing more diesel cars to the US from 2007, specifically because engine redesigns won't be necessary (see #2).

Beyond all that, why would one want to buy a manual transmission American car? Honda's clutch has it all over anything detroit has ever produced.

 

[Ukridge]

Interesting response Clue, thank you. You answered many of the questions I had. Sorry to have inserted the thread drift to this topic of air access to China but I must admit it is one that I have wondered about. Shame about the preference for the automatic transmission as the six speed was a true pleasure to drive. In heavy traffic, even I would much prefer an automatic, but even in a larger touring sedan the 6 gears were a treat out on the road. Plus the diesel fuel comes in a bit less expensive for us so it is an added bonus. No warm up troubles, quiet, and smooth across the entire power band - obviously probably not fit for true sports cars but a nice drive. I will be anxious to see how they fare in your market (although it seems everything the Japaneese have brought to your market has done well!).
Thanks as well to Cosmo and the others for the well-presented information. It is refreshing to read of the thinking that goes behind such decisions (well, in this case prognostications about pending decisions...) and how they are reached.
Cheers

 

[FWAAA]

Cosmo was correct: UAL wins its IAD-PEK route request:

http://www.bloomberg.com/apps/news?pid=con...id=aO3AHNH.Es8w

 

[Ukridge]

Well, I herewith award the "tea leaf reading award" to Cosmo and Jungle for their prognostications, insights, and general reading of the entrails to predict that the Star would pick up the Beijing flight. A well deserved Bravo to them.
This then raises the question of what service United will downgrade or drop to cover this flight? I see a bit of this in the European press as the staffs of KLM, LH, BA, and AF work to decide to acquire new aircraft for certain routes or decide to shift assets. Does United have the lift capacity to cover this? If not, will it mean a drawdown elsewhere? The impression (perhaps wildly incorrect) that I get from general reading is that United has shrunk so much in a quest to be a good flat-worlder virtual airline that it has actually only added flights through outsourcing. (other than shifts of city-pairs for the larger planes)
I will have to put my ear a little closer to the track and see what the Europeans are doing as they also try to expand service into the Far East.
Cheers

 

[ClueByFour]

This then raises the question of what service United will downgrade or drop to cover this flight? I see a bit of this in the European press as the staffs of KLM, LH, BA, and AF work to decide to acquire new aircraft for certain routes or decide to shift assets. Does United have the lift capacity to cover this? If not, will it mean a drawdown elsewhere?

The informed speculation (and the fact that it changes gauge on 3/24) would indicate that UA downsized ORD-NRT from a 744 to a 777. With ANA back in ORD, this makes some degree of sense.

 

[Redbone]

NW crys foul...

http://biz.yahoo.com/bizj/070118/1404479.html?.v=1

 

[Cosmo]

NW crys foul...

http://biz.yahoo.com/bizj/070118/1404479.html?.v=1

They can cry or whine all they want -- Northwest doesn't have a prayer of getting this route award. The DOT will almost certainly affirm its tentative decision awarding the new China route to United for IAD-PEK service, and even in the extremely unlikely event that the DOT changes its mind and rescinds the tentative award to United, the award would undoubtedly go to Continental for EWR-PVG service. Unlike those two carriers, Northwest has several strikes against it:

1. Northwest tried DTW-PVG nonstop service a few years ago and it didn't work. Plus, apparently for operational reasons, Northwest's proposal stated that it would only sell 335 seats on its 403-seat B747-400s, an indication that it didn't have the right aircraft for the route it wanted to serve.
2. All of its U.S. mainland-China flights don't just stop at NRT, they require a change of planes there, even the "through" B747-400 flight from NRT to PVG (according to the January 2007 OAG). And the plane change for the NRT-PEK and NRT-CAN flights are to smaller aircraft (the A330 and B757, respectively).
3. A substantial portion of Northwest's NRT-China passengers (between 25% and 50%, depending on the flight) are local China-Japan travelers not coming from, or going to, the United States. This is not a favorable decisional factor from the DOT's viewpoint.
4. If Northwest's ability to carry west coast-China traffic over its NRT hub is so important, acting as competition to United's SFO-China nonstop flights (as Northwest has claimed in this case), why doesn't the carrier offer any through flights to China from its west coast gateways (LAX, SFO, PDX and SEA)? This lack of one-stop service weakens Northwest's argument considerably.

These points go a long way to showing why Northwest didn't get the award in the current China route case and, furthermore, why it is unlikely to get any awards in subsequent cases if its current service pattern to China remains unchanged. United, American and Continental are using their respective China route rights to the maximum extent possible (nonstop flights with each carrier's largest fleet type), while Northwest doesn't even come close. The contrast couldn't be more stark.

 

[Redbone]

You left out the fact that seat for seat (UAL throwing far more capacity to the wind than NW) NW's Asian rasm & LF is superior to Ual's. In the end, that is what is boils down to...more pound for the buck.

Unless you are involved in DOT decisions your speculation is nothing more than conjecture. The flight should be awarded on the basis of who benefits the U.S. economy the most.

You are wrong in that NW DTW-PVG didn't work. It did and then faced the 2001 downturn (prior to 2001 the load factor was running in the 80's for every flight). NW transferred the route JUST like Ual followed NW's lead in the NY-NRT market. I bet NW comes out of this with "something"

DOT:
Table 2. System* Quarterly Operating profit/loss margin (in percent)
Network Carriers
Ranked by 3rd Quarter 2006 Margin

(Operating Profit/Loss as Percent of Total Operating Revenue)

Excel | CSV
3Q 2006 Rank Network Carriers 3rd Quarter 2005 (%) 4th Quarter 2005 (%) 1st Quarter 2006 (%) 2nd Quarter 2006 (%) 3rd Quarter 2006 (%) 3rd Quarter Operating Profit/Loss $(Millions)
1 Northwest-11.7 -8.6 -0.2 9.2 11.1 379
2 United 3.8 -4.6 -3.8 5.1 6.6 341
3 US Airways -1.0 -4.0 2.4 12.6 5.9 124
4 Continental 2.9 -3.7 -0.1 6.8 4.9 170
5 American -0.5 -8.5 1.0 7.0 3.8 220
6 Delta -4.4 -12.3 -12.8 8.0 3.0 143

 

[Cosmo]

Unless you are involved in DOT decisions your speculation is nothing more than conjecture. The flight should be awarded on the basis of who benefits the U.S. economy the most.

You're right, it is conjecture on my part. But you only need to read the DOT Order (here) awarding the 2007 route to United to understand that Northwest won't get any China route award from the DOT as long as it continues to operate all of its U.S.-China flights via NRT. I believe the following quote from the DOT Order (page 18) says it all:

Northwest’s proposed service would offer convenient connections through Detroit from a substantial behind-gateway catchment area. However, Northwest’s proposal is largely duplicative of the Detroit-Shanghai service that it currently provides one-stop via Tokyo, and if it chose to do so, it could provide nonstop Detroit-Shanghai service without the award of additional frequencies. Northwest’s election to provide all of its China service over Tokyo -- whatever its commercial basis -- results in the U.S. public’s receiving fewer nonstop choices to China than otherwise might be provided. In these circumstances, we tentatively conclude that an additional award to Northwest would not be an efficient use of valuable frequencies in the restricted U.S.-China market when compared to the benefits of United’s Washington, D.C. (Dulles)-Beijing proposal, which will provide the first-ever nonstop service to China from the largest U.S. metropolitan O&D market without such service. [Footnotes omitted.]

After reading that paragraph, how can anyone come to any other conclusion?

You are wrong in that NW DTW-PVG didn't work. It did and then faced the 2001 downturn (prior to 2001 the load factor was running in the 80's for every flight).

I can understand why Northwest would suspend the DTW-PVG nonstop flight in the aftermath of 9/11 and SARS. But if the flight was so profitable prior to 9/11, why hasn't it been restored in the last year or two when U.S.-China traffic has been booming? Perhaps a more likely explanation for the nonstop DTW-PVG flight not returning was that "the load factor ... running in the 80's for every flight" didn't equate to profitability on that service.

I bet NW comes out of this with "something"

I very much doubt it -- see above.

 

[Redbone]

"Perhaps a more likely explanation for the nonstop DTW-PVG flight not returning was that "the load factor ... running in the 80's for every flight" didn't equate to profitability on that service."


Now Cosmo,

When have you known NW not to go after the max. nickel? Why settle for one when there is a poss. for two.

LF is nothing unless you are running the highest RASM in the industry...something NW has done for a long time. Their prob. is that they are run by self serving greedy swine.

 

[Cosmo]

I brought this topic back up to the top to confirm that United has now won final DOT approval to fly the IAD-PEK route effective March 28, 2007. United just issued this press release confirming the start of its service in about seven weeks.