Airline stocks down sharply - DOJ reportedly to block AMR/LCC

[FWAAA]

I don't se it as a monopoly there will be 4 major carriers and several others that are close to major them selves. They are also competing on a world stage with many other airlines.

You're right; it won't be a monopoly, but those four major carriers carry 90% of the domestic passengers, which is fairly high market concentration.

Now my power company? there's a monopoly they have a product I have to have and they are the only game in town.
Flying is at least an option.

Sure, that's why most states have a utility regulatory agency that sets consumer rates. The power companies have to ask for permission to raise rates and the agency puts on a good show before approving the higher rates.

Electricity is something you "have to have?" I admit that it's something we've grown used to having, but "have to have?" There are Amish people in parts of the country whose homes are not connected to the power grid. Not how I choose to live - but electricity is very useful, but not required. Besides, you have options - put up some PV cells on your roof and let the sun supply your energy. Construct a windmill or water wheel.

If the DOJ was gong to sing this song they should have done it a couple of mergers ago.

There is nothing in antitrust law that supports "the government blew it in prior mergers by not stopping those companies from merging and thus, we have an absolute right to merge." A lot of people have said that in the past couple of days, but that ain't the law. That's tantamount to saying "The nation's consumers will pay the price for previous government failures to enforce the antitrust laws." That's an absurd result and the federal government doesn't have to let consumers twist in the wind just because previous administrations failed to enforce the law when it had the chance.

After each of those prior mergers, there were more large major airlines than there will be after this proposed merger. Following the UA/CO merger, there were five large major airlines remaining. A cogent argument can be made that five was sufficient competition and that four is too concentrated a market.

I fully understand why a lot of US Airways employees are very angry at Tuesday's lawsuit and why many of them want the merger to occur. For US pilots, it appears to be the easy way to escape their very low hourly payrates and finally get payrates that are in the ballpark of the rest of the industry. The pilots are in line for huge raises they have failed to negotiate for the past eight years (because of their peculiar SLI dispute). Other employee groups will benefit from a merger as well.

 

[WorldTraveler]

Several things need to be noted:
What happened with previous mergers does not have any bearing on the AA-US merger. The DOJ couldn’t have seen then that AA and US would merge –AA mgmt repeatedly said it wanted to remain independent and restructure on its own. It is only because Parker dragged labor into the situation that AMR’s creditors believed that their recovery could be hampered by supporting an AMR standalone restructuring which would have required deeper cuts.

People also need to remember that AA-US has more overlap and fewer overall benefits than either DL-NW or UA-CO provided. The lack of the ability of this merger to bring AA-US up to par with DL and UA globally while also concentrating AA-US much more strongly along the east coast is part of the concern. The DOJ has less concern with what AA-US doesn’t get as it does that they will have a very strong presence on the East coast. Trying to compare what happened with DL and UA’s mergers or WN’s for that matter isn’t the same because of the market concentration issues on the east coast.

None of the mergers solved every competitive shortcoming and neither will this one; followup strategies are essential to creating an airline with the mass necessary to compete in every market. AA-US appear to acknowledge the weakness in the west and Asia but don’t want to give up their excessive strength on the East coast.

BTW, it is precisely because DL and UA now are very strong on the east coast that they will never merge with another carrier with significant east coast operations.

There is a first mover advantage / last mover disadvantage that I have spoken of before many times regarding this wave of mergers. DL had it easiest because there was little market concentration happening due to the very complementary nature of DL and NW’s networks creating very little overlap but also because they were the first and the levels of concentration go up w/ each successive merger.

Obviously AA-US want to argue that they should be allowed to merge because others did but there is no legal requirement that the Justice Dept. should allow a merger now just a competitor was able to do one before. The justice department cannot predict what the future state of businesses will be; they can only act on what is before them right now. AA argued for years that they wanted to be a standalone carrier and restructure on their own which only makes it harder for AA-US to now argue that the DOJ should now allow a merger that AA said it didn’t want.

There is also a factor that the airline industry has undergone enormous change and consolidation over the past five years. It is indeed possible that we are at the new norm but not everyone - including the DOJ which does bow to political pressure - is ready to accept that prices this high should be the way the industry operates. It is very possible that if the merger was tried again in a couple years, it could succeed with fewer obstacles (and we don’t know yet if the merger is salvageable and if so at what cost).

Arguments about profits belie the fact that there are companies that have managed to be profitable despite their structural disadvantages or niche status. WN has long been profitable despite not being a nationwide carrier or access to the biggest NE business markets. DL more recently has shown a very strong string of profits for the legacy carriers. The industry is not inherently unprofitable. The notion that the industry can’t be profitable as it exists today is perhaps more of a function of some individual players than of the industry as a whole.

For instance, consolidation will help the profitability and DL, UA, and WN and perhaps more so than AA or UA, whether they remain separate or merge at least in the next few years while AA and US spend a lot of money to make this merger work (if they get the chance). There is equally no requirement that each of the three legacy airlines have similar levels of profitability or even equal chances to make the same profits. Wal-Mart has made some strategic moves that significantly threaten other retailers but Target can’t demand that it be given the same opportunity to put stores in some markets where Wal-Mart was there first. When a city says their zoning requirements have accommodate all of the big retailers they want in their city, Target and Best Buy etc are SOL.

DCA has been problematic before and the slot deal compounded that. Parker got a majority of slots in the slot deal but now wants to merge to add even more despite indications that the size of US’ operation at DCA was of major concern to the DOJ and DOT then. Is it possible DL knew the difficulty US would have down the road and thus was happy to throw as many DCA slots at US as possible to create more problems now?

Arguments about "we deserve it and they are treating us differently" seem to forget that WAS was a problem for one of the major airline mergers that failed - UA/US - because of the concentration that would happen in Washington DC. There are political considerations but WAS has pretty limited infrastructure at DCA to allow one carrier to dominate DCA - and IAD is much further from DCA than JFK is from LGA.

The US does not have the longhaul transportation alternatives that other countries have partly because the US gov't made the decision decades ago to build one of the best and most extensive highway systems in the world and, practically at the time, committed to building the largest air transportation system.

Advantage fares – NW did the same type of thing but it wasn’t as big of an issue, again because the industry was less concentrated. US’ practice today goes all the way back to what HP did so the tactic of undercutting based on being “too small” is a tactic that Parker has long used and now finds himself trying to walk away from by growing into a larger carrier. Execs should think long and hard about starting unsustainable strategies. (ie US subsidizing agriculture). Ironically, US has survived because of practice of undercutting other carriers and now wants to end that practice but doing so will increase pricing in the industry.

WN could be counterbalance but they have shown they will raise fares to highest level possible and they don’t have access to many of the key markets in which the legacy carriers could force price increases. WN isn’t the bargain it used to be but their walkup fares are still often lower than the legacy carriers. Who is to say that the American people or DOJ will accept WN’s walk up fares as sufficiently low or that they will choose to keep them at that level? Economic theory says they will force them as high as they can which means you might have to make room at the most crowded airports for a new generation of discount carriers who could then become the pricing discipline to the industry – and be large enough to matter.

How do you reframe or counteract or defend the anticompetitive language the DOJ discovered? – only solution is to provide very strong checks and balances by opening access to other carriers. It is precisely because of the comments that Parker made that the DOJ will likely require significant divestitures to ensure that other carriers can succeed. Even in markets like CLT to DFW, they want to know that AA/US cannot use their power to keep other carriers from even trying.

This lawsuit is about holding out for the best alternative (read most financially rewarding) for US, AMR creditors, US employees, execs involved, AMR creditors – doesn’t mean they can win but that the cost of giving up is much more than the cost – for now – of continuing to fight.

Final note: One of the key lawyers who represented Microsoft in DOJ case alleging monopolistic abuse is part of the US case; same judge who oversaw Microsoft case is assigned AA-US vs DOJ case. A mediated settlement was reached.

 

[psa8979]

LCC/AMR+DOT= HINDENBURG ? SELL or BUY ? Contracts NOW ! SOLIDARITY WORKS .

 

[cltrat]

Electricity is something you "have to have?" I admit that it's something we've grown used to having, but "have to have?" There are Amish people in parts of the country whose homes are not connected to the power grid. Not how I choose to live - but electricity is very useful, but not required. Besides, you have options - put up some PV cells on your roof and let the sun supply your energy. Construct a windmill or water wheel.





After each of those prior mergers, there were more large major airlines than there will be after this proposed merger. Following the UA/CO merger, there were five large major airlines remaining. A cogent argument can be made that five was sufficient competition and that four is too concentrated a market.

I fully understand why a lot of US Airways employees are very angry at Tuesday's lawsuit and why many of them want the merger to occur. For US pilots, it appears to be the easy way to escape their very low hourly payrates and finally get payrates that are in the ballpark of the rest of the industry. The pilots are in line for huge raises they have failed to negotiate for the past eight years (because of their peculiar SLI dispute). Other employee groups will benefit from a merger as well.

I am just going to assume you were trying to be funny with the electricity comments since you normally don/t say such stupid things. The power company here which recently merged with the only other power company in the state are currently trying to get a rate increase now. The same power company loaned the DNC 10 million bucks which the DNC reneged on and left them holding the bag. I would have been pissed if they had done that to either party but I find that one more annoying, so pi$$ on there rate increases.

I also feel the DOJ is interfering with the airlines ability to compete on a world stage with other airlines that don't face.
Maybe you can explain why you have flipped at least a couple times on this merger issue and why we should give you any credibilty now?

 

[ograc]

I don't se it as a monopoly there will be 4 major carriers and several others that are close to major them selves. They are also competing on a world stage with many other airlines.

Now my power company? there's a monopoly they have a product I have to have and they are the only game in town.
Flying is at least an option.
If the DOJ was gong to sing this song they should have done it a couple of mergers ago.

Other than a few cents per gallon; what choice does the consumer have on the price they pay for gas? Why hasn't the consolidation of oil companies raised a concern, regarding the consumer, being subjected to price hikes and price fixing based on consolidation? The price of gas has a more direct and unescapable impact on the public's budget than discretionary spending such as airline ticket prices and fees. This decision by the DOJ reeks of "politics as usual" on Capitol Hill. Since when has Washington been concerned about the people over special interest groups with the money? I smell Doo Doo!

 

[cltrat]

Other than a few cents per gallon; what choice does the consumer have on the price they pay for gas? Why hasn't the consolidation of oil companies raised a concern, regarding the consumer, being subjected to price hikes and price fixing based on consolidation? The price of gas has a more direct and unescapable impact on the public's budget than discretionary spending such as airline ticket prices and fees. This decision by the DOJ reeks of "politics as usual" on Capitol Hill. Since when has Washington been concerned about the people over special interest groups with the money? I smell Doo Doo!

I agree 100% ograc I've said it before and I will again nothing but nothing happens in DC that politics does not play into. Both sides of the asle are just as guilty.

 

[ograc]

I agree 100% ograc I've said it before and I will again nothing but nothing happens in DC that politics does not play into. Both sides of the asle are just as guilty.

Apparently; US and AA haven't greased enough or the right palms. The questions are; how much $$$ and sacrifice are the parties willing to concede to make the merger happen and who, ultimately, will pay for it? You can bet the labor groups at the combined carrier will be expected to share the burden through "stingy" contract talks. There will be a threshold of concessions if exceeded though, where the parties agree, it no longer makes economic sense, from a business model standpoint, to proceed with the merger. Case in point... the attempted US/ UA merger.

 

[Pi brat]

http://www.bloomberg.com/news/2013-08-11/eric-holder-owes-the-american-people-an-apology.html

This makes me feel SOOOOO much better about the DOJ's decision on AA/US. Maybe at least we will get an apology next year. "OOOPS, we were wrong, sorry!"

 

[jimntx]

Do I have to spell it out? Airline CEO's and Industry analysts have stated time and time again that the industry needs consolidation because it will never be stable the way it was. The numbers prove that and if you look at the numbers now there is great improvement but not to the point it needs to be. The AMR/LCC merger would help to make this a viable industry. When the DOJ states that competition will be lessened I think they forget that people who fly use discretionary income. If ticket prices are too high, they won't fly. Also, I don't believe the DOJ is looking at what the industry has done in the past and is focusing on some misinterpreted words. They stated that to prove their point average ticket prices rose $25 over a given period but I think they fail to realize that with the increase 2 of the 5 biggest airlines still lost money last year. It is clear to any who follow the industry that there were too many airlines cutting each others throats to see who could lose the least amount.

Are you saying industry consolidation is not needed?

P. Rez

http://money.msn.com...er-isnt-too-big (read this article)

Mergers with the exception of AA-US have already occurred; industry consolidation has already happened; yet, the only evidence you present as an argument for the AA-US merger is a list of massive losses from the airlines that have already merged. Are you saying that this is proof that the AA-US merger will stop the massive losses. How so? How will this merger benefit DL, UA, or WN?

Perhaps we could just say that the sun has risen every day since 2003. That is proof that the sun needs to rise on an AA-US merger.

 

[ContUNITEus]

Several things need to be noted....

WOW 66 lines...

LOL

 

[cltrat]

http://www.bloomberg...an-apology.html

This makes me feel SOOOOO much better about the DOJ's decision on AA/US. Maybe at least we will get an apology next year. "OOOPS, we were wrong, sorry!"

to call Holder a douche would be demeaning to the douche

 

[jimntx]

The low-class namecalling that starts from LCC employees the minute anyone dares to disagree with them (see also, the endless and pointlessly repetitive U.S Airways pilots "discussion" for the past 7 years or so) makes me less and less interested every day in the proposed merger.

 

[cltrat]

The low-class namecalling that starts from LCC employees the minute anyone dares to disagree with them (see also, the endless and pointlessly repetitive U.S Airways pilots "discussion" for the past 7 years or so) makes me less and less interested every day in the proposed merger.

awwwww bless your heart

I've never been a big fan of it either ,mostly due to the countless examples of AArogant AA employes.
I just don't think the govt should put their greasy hands.
hey if it don't enjoy BK part 2.

 

[WorldTraveler]

The low-class namecalling that starts from LCC employees the minute anyone dares to disagree with them (see also, the endless and pointlessly repetitive U.S Airways pilots "discussion" for the past 7 years or so) makes me less and less interested every day in the proposed merger.

they surely don't have a corner on the market.... this is one area where the DOJ won't have any problem ensuring ample competitive forces continue to exist. -)

 

[Pi brat]

The low-class namecalling that starts from LCC employees the minute anyone dares to disagree with them (see also, the endless and pointlessly repetitive U.S Airways pilots "discussion" for the past 7 years or so) makes me less and less interested every day in the proposed merger.

You have a few of your own. If I thought the DOJ had a good case, I'd agree. Go to kayak.com, search CLT-DFW and see if that looks like a monopoly to you.

I wasn't crazy about merging with AA. I've been through 3 mergers already, but figured that long term it would be better for everyone. That and the fact that we have spent over a year on this, with everything else on hold-both sides.

"1400 different itineraries available for CLT-DFW isn't a monopoly? Sorry, our bad."