As I predicted back in August, Jim Whitehurst has reemerged at the helm of a company. Starting January 1st, 2008, Mr. Whitehurst will begin his new role as President and CEO of Red Hat, an open-source software company. I’ve heard many people comment on the airline industry’s difficulty in attracting and/or retaining top talent among the management ranks; this would seem to bolster their point. Gordon Bethune used to say that the sickest patients need the best doctors. It will be interesting to see what medicine Mr. Whitehurst has for Red Hat and how that company’s performance compares to that of Delta’s. Vastly different companies, to be sure, but I don’t think the impact a CEO can have on a company can be overstated.

I was struck by the seeming contradiction in the October 16th conference call with Delta Airlines. Namely, Richard Anderson, CEO of Delta, spoke of consolidation within airline industry and then later implied that Delta is likely to divest its regional subsidiary, Comair. So, consolidation “makes sense” to Mr. Anderson, but so too does spinning off its regional? On the surface, this seems contradictory, but a closer look at how competition within the airline industry works reveals that, at least superficially, this makes a lot of sense.

The distinction that must be made here is between the different relationships that mainline carriers have with regional airlines compared to other mainline carriers. Other mainline carriers are direct competitors whereas regionals are really act as suppliers to mainline carriers. Thus, when a mainline carrier acquires a regional, it is essentially an act of vertical integration. Although the airlines avoid trying to say it out loud, the primary benefits from mainline consolidation are anticompetitive in nature. I.e., cancel overlapping flights and hopefully raise prices. The benefits from integrating a regional into a mainline are, supposedly, lower costs and more control. However, most of the benefits from such a relationship would appear to befall the regional more so than the acquiring mainline. The biggest downside from a mainline owning a regional subsidiary is that they can not employ the thumbscrews when it comes time for the next contract negotiation. Delta, for example, has contracts with several regional carriers, including Comair. These regionals have to compete against each other for Delta’s business and regionals live or die by their relationships with the majors. Mainline carriers clearly have the advantage at the bargaining table as they can easily make a credible threat of flying the routes themselves. Regionals lost the credibility of making a similar threat when Independence Air went bankrupt after striking out on its own. Competition for these contracts is fierce. So, it should not be surprising that Delta feels it would be better off with Comair as a separate entity. As such, Delta will be able to put outside pressure on Comair that it likely can’t do as the owner.

American Airlines seems to share the same view as Delta, as Gerard Arpey indicated in their last conference call that they are also considering selling their regional subsidiary, American Eagle. Unlike Delta, however, American seems more realistic about the difficulties of consolidation of mainline carriers and projected a more pessimistic tone for such transactions.

There is one other timely reason for mainline carriers to spin off their regionals: airport congestion. Given the increased traffic delays and increasingly louder outcry from public officials, there has been a call on airlines to replace regional jets with larger aircraft making fewer flights. Shifting the ownership of those regional jets gives the mainlines a little bit more “plausible deniability” for their role in the problem.

Thus, the industry is left in an awkward position where it makes little sense for mainline carriers to own their own regional carrier when it is easier for them to pit the regionals against each other for their business. This, in turn, leads me to believe that consolidation within the regionals is the next logical step. Only when there are fewer regionals at the bargaining table with the majors will the regionals have the ability to negotiate from a position of power. Of course, if that happens, then it will make sense for the mainlines to consider acquiring regionals again….

As I was reading through the most recent issue of BusinessWeek, I noticed a pretty sharp contrast in the approach taken by the airlines advertising therein. So, I thought it would be fun to put them all up next to each other and see what we can make of them. I went back a few issues to see what other ads have appeared lately, and came up with seven ads over the past month or so (just in BusinessWeek).

Take a quick look at the following 7 advertisements. Spend about a second or two looking at each one (if you click on an ad, a larger one will open up in a different window). Ready? Go:

So, what do you think? Can you tell me which 7 airlines you just looked at ads for? Which one did you find most appealing? Why? Least appealing? What did you take away from each ad? What do you think the airline wanted you to take away?

I have to say that, personally, I found the SIA (Singapore International Airlines) ad to be the most interesting/appealing to me. On the flip side, the first time I saw AirTran’s ad I couldn’t get myself to read all the text on the ad (which is really bad considering that I like this stuff). It took me a second to understood the message of Delta’s ad, but I’m not a gambler or card player at all. I found Korean Air’s ad visually interesting although I’m not really sure what the point was.

In an era when airline travel is increasingly commoditized, it’s interesting to see how airlines attempt to differentiate themselves through advertising.

I don’t think you had to know much about Delta Airlines to see this one coming. Rising star James Whitehurst has just resigned from his COO position at Delta Airlines. My hunch is that this will hurt Delta more than many think it will and that odds are pretty good that we’ll see Whitehurst at the helm of a company pretty soon. Richard Anderson looks to be a good choice for Delta, but no one likes to be passed over, especially for an outsider. I think a lot of people were expecting Delta to choose someone from their own bench given the depth that they have. Ah, but who knows what goes on in those boardrooms once the doors are closed?

Whitehurst’s bio (from Delta’s website):

Jim Whitehurst, 38, is Chief Operating Officer. He is responsible for Operations, Sales and Customer Service, Network and Revenue Management, Marketing, and Corporate Strategy.

A native of Columbus, Ga., Whitehurst graduated from Rice University in Houston, Texas, with a bachelor’s degree in Computer Science and Economics. He also attended Friedrich-Alexander University in Erlangen, Germany, holds a general course degree from the London School of Economics and an MBA from Harvard Business School.