American Needs US Air Merger: Analyst
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Onestep2flt
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This reminds me of the article on the Delta/Northwest merger some time after it was announced. They were quoting Frank Lorenzo as an airline expert.. Someone forget to mention about him being banned from the industry and all!
Dog Wonder
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The analysts are on this board. Rarely does one of the paid 'analysts' offer anything not offered here first.
And everything you read here is absolutely true..
V
VAflyGal
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The problem with this, Dog Wonder Darling, is that nitwit bozos who lurk will believe what we say here and profess it as the truth.
In the meantime I'm going to finish my libation from the earlier post that me recoil in horror and try to spit out the bile that keeps forming.
Somebody better praise my earlier rant or I'm going to walk out to the cornfield, myself, and die for two weeks. Capital U. Capital G. Capital H.
Dog Wonder
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Just another analyst with a corporate slant. Try not to take them, or me, seriously.
V
VAflyGal
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*groans*
I know I know - it's hard to read tone in emails and texts - I get your humor and was responding to it -
my crabbiness lies within my limited rest and reserve period because everyone else is enjoying a sickation while i go from number 159 to number 24 on call in one day. Forgive me.
American will never express much interest in needing or wanting to pursue a merger with US. American is very shrewd and cheap and would not want to pay a cent more for US than they have to and acting like they don't care is part of their poker face. I am not sure they do want US just saying if they do ever make a bid, they will maintain they would still be fine as a stand alone carrier. They got TWA for pretty cheap because of the bankruptcy, thats how they play. In this situation there is absolutely no sense of urgency either because they can wait and see how the combined UA/CO turns out (remember bigger isn't aways better) and there is no risk of losing the opportunity because they are they only two network airlines left. While Parker is one of the most promiscuous airline execs and will not likely be able to abstain from the recent mega-merger orgies we have seen and wait an eternity for AA, a smaller merger with an AS would not necessarily preclude another merger with AA because the combined three carriers would still likely be smaller than UA/CO.
Jester
Veteran
Much to my amazement, no one picked-up on a white sheet report by some fairly experienced airline people... Or I missed the link between the barbs and counter-barbs of "You Suck" and "No, You Suck More!" While the article discusses the industry as a whole, in particular the CO and UA merger, there were several lengthy sections of analysis advocating a merger between US and AA. Word of caution that some economigeek spoken... For example:
(FAIR USE)
"If the industry is not allowed to consolidate in the most rational manner, the result will be a continuation of the slow liquidation and the inevitable failure of US and AA, the two remaining network airlines in need of restructuring. The most likely outcome would be an AA bankruptcy and outright liquidation of US."
"A merger of AA and US provides one path that can create real value for the stakeholders of these two airlines and the industry."
"In the end, the loss of US through liquidation provides the same result—three network carriers. But without the national scope provided by merging with another network carrier, where would AA stand among global competitors such as the UA (+CO) and DL (+NW) alliances?"
"For AA, this means that the UA/CO and DL /NW combinations can provide their global branded alliance partners and customers richer, more integrated access to the U.S. market than AA can, but an AA/US merger would enable AA to remain competitive within the U.S. market."
http://airlineforecasts.com/UA_and_CO_big_win_for_all_stakeholders.html
So Indulges Jester.
(FAIR USE)
"If the industry is not allowed to consolidate in the most rational manner, the result will be a continuation of the slow liquidation and the inevitable failure of US and AA, the two remaining network airlines in need of restructuring. The most likely outcome would be an AA bankruptcy and outright liquidation of US."
"A merger of AA and US provides one path that can create real value for the stakeholders of these two airlines and the industry."
"In the end, the loss of US through liquidation provides the same result—three network carriers. But without the national scope provided by merging with another network carrier, where would AA stand among global competitors such as the UA (+CO) and DL (+NW) alliances?"
"For AA, this means that the UA/CO and DL /NW combinations can provide their global branded alliance partners and customers richer, more integrated access to the U.S. market than AA can, but an AA/US merger would enable AA to remain competitive within the U.S. market."
http://airlineforecasts.com/UA_and_CO_big_win_for_all_stakeholders.html
So Indulges Jester.
I read the white paper a few weeks ago but just joined yesterday. I think it was a great anaylsis with one shortcoming. The main premise was the current mix of network carriers makes pricing decisions that are good for the individual airline short-term, but collectively they had underpriced their product by around 11% (if I remember correctly) over the past decade, and this type of pricing will eventually lead to the slow liquidation of US and AA, based on their debt structure, capital expenditures, etc. With a fewer number of larger network carriers the airlines will both reduce capacity and will have better control and more rational pricing that is good for the industry as a whole.
However, the analysis underestimates if not completey ignores the fact that with 80 plus percent load factors today, WN and other low cost carriers will try to fill the void and may even develop their networks to more resemble the domestic systems of the traditional carriers with a workforce that, with maybe the exception of WN, has no recollection of a high wage environment, thus reducing the pricing power of the big three. Ironically, the analysis did point out how much low cost carriers and WN have taken over a significant portion of the domestic market share over the past decade.
However, the analysis underestimates if not completey ignores the fact that with 80 plus percent load factors today, WN and other low cost carriers will try to fill the void and may even develop their networks to more resemble the domestic systems of the traditional carriers with a workforce that, with maybe the exception of WN, has no recollection of a high wage environment, thus reducing the pricing power of the big three. Ironically, the analysis did point out how much low cost carriers and WN have taken over a significant portion of the domestic market share over the past decade.
Jester
Veteran
Jason,
I am glad that someone read the analysis before I did, although I think you missed a key element of their analysis and why there are doubts the low-cost model would attempt a far reaching network. The articles states, "The low-cost model also operates from hubs (called "focus cities" by some), but LCCs tend to operate limited types of aircraft, to feature point-to-point services, and to operate only between high-density domestic and cross-border airport markets." Later, the authors crassly stated, "It's the network, stupid." whereby the network and the global reach capabilities from small towns to major international destinations, inclusive of alliance agreements. Obviously, as in the example of WN, they fly one aircraft type, need a minimum of five daily flights to a new station and typically a fair amount of point-to-point flying, limit their options into smaller cities and overseas destinations. Essentially, the complexity of the fleets to complete various missions which are eschewed by low-cost carriers, thus some markets will not be taken over as you described. Not to say the LCCs have not had a huge impact on network carriers as the bread-and-butter money makers between a hub and a large city, but much of the low lying fruit has been picked and the options are becoming increasingly limited.
Also as a point of correction, and I am surprised I am the first, SW has actually some of the highest wages in the industry, but they also have some of the greatest productivity in the industry, as well. I believe this gets to two issues: 1) Rent sharing (see the discussion in Fleet Service board), and 2) the number of segments which will be flown during a typical day per aircraft (in large part due to quick turns usually under 30 minutes).
So Views Jester.
Related article dated June 1, 2010 with comments on merger possibilities from Scott Kirby.
http://www.thestreet.com/_yahoo/story/10771279/1/us-airways-merger-probability-is-high.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA
http://www.thestreet.com/_yahoo/story/10771279/1/us-airways-merger-probability-is-high.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA
SparrowHawk
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When I read the boards here and elswhere the topics on Mergers always make me ponder if we haven't entered into the age of extinction of the network carrier and morphed into the Alliance era? Consider if you will the following:
Do we really need all of the smaller airports? Example, my beloved ACY is sandwiched between EWR & PHL with drive times relatively equal.This is not the only example. in PA ABE is another questionable airport unless you live there. GRR in western MI is required arguably as it is 3 hours from DTW. But MKG at 40 minutes to GRR, questionable at best.
Why couldn't or shouldn't US consider teaming up with a true LCC? Consider that an alliance between WN could work in the following way. WN carts the bulk of the alliances short haul customers to Hub/Focus cites of US Airways. US Airways completely scraps it's Express operation and flys only overseas and longer haul flights of say 3 hours or more. Result being move Carribean Coverage, Asia/Pacific routes possible out of LAX where WN & US share the same terminal. Same for TATL. It could work and the remaining US a/c not used for carribean/canada/soamerica/europe/asia/pacific would be used strictly for PHL-LAX and type flights. it would seem to drive a ton of cost out of the business and allowing two airlines to profit doing what they do best. Let AA, CO/UA and DL/NW smash it out for all that FAR-ORD-GSP business. WN will eventually get to some of those type cities and get them to PHL on US flights to PRG, BUD and cities not currently serviced by US. US/WN could be an absolute juggernaut with a little out of the box thinking.
I see no valid business reason for US to merge with a network carrier. What does it get them that they don't already have? Better Labor Relations? Hardly, given AA's track record in that arena. Better Customer Service? Doubtful! Fewer a/c types and lower cost? where? How?
IMO US is far better off with one or more smaller LCC's with similar fleet types.
Do we really need all of the smaller airports? Example, my beloved ACY is sandwiched between EWR & PHL with drive times relatively equal.This is not the only example. in PA ABE is another questionable airport unless you live there. GRR in western MI is required arguably as it is 3 hours from DTW. But MKG at 40 minutes to GRR, questionable at best.
Why couldn't or shouldn't US consider teaming up with a true LCC? Consider that an alliance between WN could work in the following way. WN carts the bulk of the alliances short haul customers to Hub/Focus cites of US Airways. US Airways completely scraps it's Express operation and flys only overseas and longer haul flights of say 3 hours or more. Result being move Carribean Coverage, Asia/Pacific routes possible out of LAX where WN & US share the same terminal. Same for TATL. It could work and the remaining US a/c not used for carribean/canada/soamerica/europe/asia/pacific would be used strictly for PHL-LAX and type flights. it would seem to drive a ton of cost out of the business and allowing two airlines to profit doing what they do best. Let AA, CO/UA and DL/NW smash it out for all that FAR-ORD-GSP business. WN will eventually get to some of those type cities and get them to PHL on US flights to PRG, BUD and cities not currently serviced by US. US/WN could be an absolute juggernaut with a little out of the box thinking.
I see no valid business reason for US to merge with a network carrier. What does it get them that they don't already have? Better Labor Relations? Hardly, given AA's track record in that arena. Better Customer Service? Doubtful! Fewer a/c types and lower cost? where? How?
IMO US is far better off with one or more smaller LCC's with similar fleet types.
Republic?
Well it was several weeks ago when I read it. I see your point and agree LCCs focus on O&D traffic, but except for maybe Virgin America, they all have hubs to some extent, even if by happenstance in some cases. In fact, if you think about it, Southwest, which many anlaysts consider hubless (I was glad to see the white paper not take this approach), has more hubs than any airline, if you define hub as a connecting center. Take LAX-FLL for example. In addtion to their direct one and two stop flights, you have the choice of six connecting hubs on this one route: LAS, DEN, STL, BNA, HOU, and MDW. I was actually surprised I didn't see PHX in there too, at least at one time one of their biggest "hubs". Southwest has already become the largest domestic carrier in terms of passengers flown and they always grow and oneday may have a more sophistaced hub network in addition to all their point to point flying now. The traditional carriers did not start out with hubs either, they evolved over time, especially after deregulation in 1978, and right now we are seeing other fundamental changes which could reshape the industry. While hubs are expensive, they are very efficient, and LCCs with lower pay scales (like I said before with maybe the exception of WN) are eventually going to run out of opportunities with enough demand for point to point flying. If we have only 3 network airlines left, which may cut approximately 10-15% of their domestic capacity as a result of mergers, even while enjoying 80% plus load factors, don't be surprised to see LCCs look for other domestic opportunites outside of their box. Jetlbue has more than one type aircraft from two different planemakers and I am not a pilot but aren't we seeing more commonalities in cockpits now that jets are becoming more sophisticated, even accross different a/c types? Boeing could always develop yet another smaller and larger derivative of the 737 to apease WN if they flat out refuse any other type of aircraft, althought I think WN is made it clear nothing is off the table. I also wouldn't be surprised to see international carriers approach LCCs with alliance opportunities similiar to what we have already seen with JetBlue. I am sure many airlines abroad would love to team up with Southwest.
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