As US Airways shares rally, AMR merger may be more likely, Bloomberg reports

[robbedagain]

wings would you say city pairs such as say... ATL- DFW ORD CLT PHL etc
ORD-DFW CLT PHL MIA etc ?

 

[WorldTraveler]

Wings,

gotcha...

I have posted the amount of low fare competition for each of AA/US hubs vs. other carrier hubs and AA/US is much more concentrated than DL or UA.

I don't have the info readily available but it is on here someplace....

but

DCA has about 12% low fare carriers - but 3-4% of that is for B6 just on DCA-BOS - which has no impact on the rest of the US. WN/FL have about 5% and they do fly to places that have a nationwide effect on prices.

CLT and MIA both have very little low fare competition; for CLT, there are limited gates, for MIA the problem is high landing fees which makes it a less than ideal market for low fare carriers.

DFW has no competing hub carrier; NK has a presence but it is relatively new and there isn't data to show they have had any real effect on breaking AA's monopoly.

In contrast.

at ATL, DL has competition from FL/WN with more than 150 flights/day including to the top markets.

At LGA/JFK/EWR, B6 is headquartered and has flights from all 3 airports. DL is larger at JFK overall by flights but B6 is larger if you look at just domestic. LFCs have about 15% share of seats at both LGA and EWR.

At ORD/MDW, there are 3 hub carriers.

At DEN, there are still 3 carriers fighting for the market.

At PHL, WN still has a decent sized presence.

At IAD and SFO, there is plenty of low fare competition.

At DTW, SLC, and MSP, LFCs have about 15% of domestic seats.

CVG and MEM were DL's most concentrated hubs and they have pulled capacity down there. UA's network has had plenty of competition for a number of years.

PHX has plenty of competition overall but US still is the only carrier to a number of small markets.

DFW, CLT, and MIA all have limited competition and because hubs represent regional market strength, there are a number of cities around those hubs and that are served by those hubs in which AA and US are strong and the merger will only make the combined carrier stronger.

Lot of AA/US people don't seem to want to admit that AA/US aren't the same as DL and UA but there is solid evidence to show that to be true.

In reality, AA and US have more hubs with less competition than DL or UA and it is precisely for that reason that they have so many markets where market strength will be concentrated by the merger.

If you look at the list of markets that are of concern to the DOJ, there are many combinations of the same cities in the southwest, west, and southeast where AA and US are strong and combined they are stronger - and where DL and UA are not.

There is real logic behind why the DOJ came up with the list of markets they chose...

It is also possible that the remedy is not that difficult if you ensure that AA/US do not lead fare increases in those 20 cities or so beyond opening up CLT to more competition (gate divestitures) plus slot divestitures at DCA.

The end of the Wright Amendment will take care of DFW.

MIA is harder but FLL isn't that far away... in the markets where AA and US increase their strength, the DOJ could probably still accept temporary limits on AA/US' ability to change prices.

The case can be resolved w/o having to give away the farm.

The reason why WN is excluded is because they have little to no influence in the most concentrated AA/US hubs - DCA, MIA, CLT, and DFW - or the routes that are problematic to the DOJ.

 

[700UW]

There are gates for any airline that wants to fly into CLT.

CLT even has a flight from InselAir.

 

[swamt]

Wings,

gotcha...

I have posted the amount of low fare competition for each of AA/US hubs vs. other carrier hubs and AA/US is much more concentrated than DL or UA.

I don't have the info readily available but it is on here someplace....

but

DCA has about 12% low fare carriers - but 3-4% of that is for B6 just on DCA-BOS - which has no impact on the rest of the US. WN/FL have about 5% and they do fly to places that have a nationwide effect on prices.

CLT and MIA both have very little low fare competition; for CLT, there are limited gates, for MIA the problem is high landing fees which makes it a less than ideal market for low fare carriers.

DFW has no competing hub carrier; NK has a presence but it is relatively new and there isn't data to show they have had any real effect on breaking AA's monopoly.

In contrast.

at ATL, DL has competition from FL/WN with more than 150 flights/day including to the top markets.

At LGA/JFK/EWR, B6 is headquartered and has flights from all 3 airports. DL is larger at JFK overall by flights but B6 is larger if you look at just domestic. LFCs have about 15% share of seats at both LGA and EWR.

At ORD/MDW, there are 3 hub carriers.

At DEN, there are still 3 carriers fighting for the market.

At PHL, WN still has a decent sized presence.

At IAD and SFO, there is plenty of low fare competition.

At DTW, SLC, and MSP, LFCs have about 15% of domestic seats.

CVG and MEM were DL's most concentrated hubs and they have pulled capacity down there. UA's network has had plenty of competition for a number of years.

PHX has plenty of competition overall but US still is the only carrier to a number of small markets.

DFW, CLT, and MIA all have limited competition and because hubs represent regional market strength, there are a number of cities around those hubs and that are served by those hubs in which AA and US are strong and the merger will only make the combined carrier stronger.

Lot of AA/US people don't seem to want to admit that AA/US aren't the same as DL and UA but there is solid evidence to show that to be true.

In reality, AA and US have more hubs with less competition than DL or UA and it is precisely for that reason that they have so many markets where market strength will be concentrated by the merger.

If you look at the list of markets that are of concern to the DOJ, there are many combinations of the same cities in the southwest, west, and southeast where AA and US are strong and combined they are stronger - and where DL and UA are not.

There is real logic behind why the DOJ came up with the list of markets they chose...

It is also possible that the remedy is not that difficult if you ensure that AA/US do not lead fare increases in those 20 cities or so beyond opening up CLT to more competition (gate divestitures) plus slot divestitures at DCA.

The end of the Wright Amendment will take care of DFW.

MIA is harder but FLL isn't that far away... in the markets where AA and US increase their strength, the DOJ could probably still accept temporary limits on AA/US' ability to change prices.

The case can be resolved w/o having to give away the farm.

The reason why WN is excluded is because they have little to no influence in the most concentrated AA/US hubs - DCA, MIA, CLT, and DFW - or the routes that are problematic to the DOJ.

WT, I agree with you 99% here. However, I don't think the W/A will completely take care of the DFW market. It will over time, but it will take some time if you look only at the W/A and SWA expansion at DAL. I too agree with your assumption about the DCA slots, and other city's concessions, as I think DFW will be part of it. Yes the W/A will indeed have a rather large effect on AA's market share around the DFW area, but SWA cannot get enough aircraft fast enough. They are currently looking for any used as well as new aircraft to grow quickly, but are having a hard time finding any. Your also correct about the influence of SWA to the merger and cities that are impacted. But the airlines want to include SWA and AT as they had no concessions asked of them what-so-ever, and both airlines were healthy (making profits) at time they chose to merge. The DOJ doesn't want them included because they let SWA and AT do whatever they wanted since they were 2 low cost airlines merging and would directly affect the previous mergers allowed as far as competition, fares and monopoly's were concern. They (DOJ) thought the SWA/AT merger would help offset the other major carriers mergers. I also say that SWA, B6 and other LCC's will benefit from the merger after the concessions are all done. I still think there will be a merger, but, and, and the concessions will be larger than the previous merger concessions. The DAL/DFW market after W/A goes away will expand, and the advertising for this to educate the general public will have to be treated as a new city...

 

[wings396]

Correct me if I'm wrong here, but couldn't they just have kept the 717 fleet if your comments are correct? If they are going to come up.short on expansion at DAL due to a shortage of AC, the removal of the 717 fleet is looking pretty stupid at this point.
No reason they couldn't have shifted all of the 717 flying to DAL for your so called quick expansion.

 

[robbedagain]

also a while back a canadian airline was offering 737s for sale if wn wanted to expand quickly they could have easily picked them up id imagine

 

[jimntx]

Correct me if I'm wrong here, but couldn't they just have kept the 717 fleet if your comments are correct? If they are going to come up.short on expansion at DAL due to a shortage of AC, the removal of the 717 fleet is looking pretty stupid at this point.
No reason they couldn't have shifted all of the 717 flying to DAL for your so called quick expansion.

Always remember that one of the cornerstones of WN's financial success has been keeping maintenance costs low by having ONE airplane type--whether it's a 737-100 or a -900, it is still a 737. Keeping the 717 means keeping mechanics, etc. that are certified on that a/c. While fleet expansion (with additional 73s) means that some of those would have to be retained and retrained, not ALL of them would have be kept and retrained. And, as AA learned in the TW merger/acquisition/kidnapping/whatever you want to call it, even retaining different models of the same a/c can require extensive retraining of flight attendants. The TW 757s were sufficiently different from AA 757s that both sides of the fence had to be trained on the other's equipment before we could fly them interchangeably. More costs again.

 

[WorldTraveler]

WN is not a short-term focused airline, which means they are not going to make a decision today that they will regret. They are getting rid of the 717s and DL is picking them up because the needs of both dovetail perfectly. WN doesn't want another fleet type while DL is using the 717s to get rid of a lot of 50 seat RJs which they don't want. The 717 is part of the DC9/M80/M90/717 family of which DL will probably operate the world's largest fleet and a big chunk of the remaining worldwide McD-D fleet in a couple years.

WN is buying some used aircraft and could buy more but they also are not interested in taking on something they need for the short-term but which is a mismatch long-term. Since WN has cockpit configs that are different from other airlines, they probably have no desire to acquire aircraft that don't match what they have.

WN does have a lot of aircraft on order but they probably do not to retire some; I'm just not sure how much.

It also is not a given that WN is going to continue to grow as much as they have in the past which means they could reduce capacity overall and still expand into key markets like Love Field.

I do agree swamt that the fall of the Wright Amendment won't change everything immediately but WN will expand aggressively in the first few months to establish a sufficiently large size at DAL to be taken seriously as a true nationwide airline from N. Texas. They will probably bias to the side of adding more markets w/ fewer frequencies initially and add frequencies in key markets like LAX, BWI, BNA, and MDW shortly thereafter followed by a full nationwide buildout.

In reality, if the AA/US merger were being proposed after the first round of Love Field additions, the DOJ's response would likely be very different. WN is very interested in AA/US pushing for a quick trial because WN will likely end up w/ slots and have a better chance of marketing DAL shortly after the merger while AA and US are still in the phase of putting the pieces together.

If AA/US had merged several years ago, they would have a headstart on WN at DAL and elsewhere on the east coast. Now AA/US will be merging right as WN nearly completes its merger and is ready to focus on major strategic objectives. I believe WN is also working on a new terminal at LAX - not sure when that finishes or if they gain gates out of it but that will likely be another strategic opportunity for WN.

Jim,
while AA likes to talk about the costs involved with diverse fleets, let's remember that over 20 years ago, AA ordered the 767-300 and A300 even though both aircraft had pretty similar performance. Now, AA has 737s and 320 family aircraft on order and the combined AA/US fleet will be just as complex as DL and UA. AA did gain fleet complexity with TW but they also have created some of their own thru their own aircraft purchases. The merger will move it to a whole new level - just as happened with DL and UA.

 

[wings396]

I realize that, but is the tradeoff worth it in this case? Sacrificing the rapid growth of DAL in exchange for an accelerated retirement of a fleet of 80+ AC. They can and will achieve this goal at some point, but slowing it down until more 737's arrive seems like a feasible plan.

 

[WorldTraveler]

I'm pretty sure that DL was very clear about the conditions under which they would take the 717s and WN had few if any other options to get rid of the plane if they couldn't make a deal with DL. The fact that WN is doing mod work on the aircraft before delivery to DL and WN is still subsidizing the leases on the aircraft says that DL was in the driver's seat as far as getting the terms they needed.

WN wanted the 717s gone and will find other ways with its own fleet in order to have the aircraft necessary in order to grow.

Remember part of the long-haul growth that will come at DAL has to come by reducing some short haul flights; there just aren't enough gates there to keep all they have now and still add more flights.

I'd like to know how many mandatory retirements WN has in the coming years based on aircraft age. Perhaps swamt knows.

 

[Zone5]

If nothing else, I would like to see their published numbers on the city pairs of both DL & UA in comparison to what they whipped up with the 1000+ of a combination of AA & US. I'm willing to bet they are all in the same ballpark.

Absolutely! The DOJ came out of left field in the eleventh hour, with this "connecting" city pairs metric. Total BS, let's see the same analysis of the Delta, United and Southwest mergers!


seajay

 

[WorldTraveler]

Absolutely! The DOJ came out of left field in the eleventh hour, with this "connecting" city pairs metric. Total BS, let's see the same analysis of the Delta, United and Southwest mergers!


seajay

although AA/US people want to believe they are being treated differently, the same methodology for measuring market concentration was used with the previous mergers.

The difference is that the market REALLY IS more concentrated now... that is what happens with mergers. That is also why the DOJ specifically stated with the DL/NW merger, that they had no obligation to treat future mergers the same way which is clearly laid out in antitrust law outside of the airline industry.

IOW, just because DL, UA, and WN all had mergers, AA/US is not equally entitled to one on the same basis.

Part of the risk of merging later in an industry is precisely what AA/US are facing. This isn't the first time that concentration has been more problematic for later mergers in an industry.... there have been many mergers in the telecom and cell phone industry but DOJ said AT&T and T-Mobile was one too many - and they shot the merger down.

 

[Reed Richards]

although AA/US people want to believe they are being treated differently, the same methodology for measuring market concentration was used with the previous mergers.

The difference is that the market REALLY IS more concentrated now... that is what happens with mergers. That is also why the DOJ specifically stated with the DL/NW merger, that they had no obligation to treat future mergers the same way which is clearly laid out in antitrust law outside of the airline industry.

IOW, just because DL, UA, and WN all had mergers, AA/US is not equally entitled to one on the same basis.

Part of the risk of merging later in an industry is precisely what AA/US are facing. This isn't the first time that concentration has been more problematic for later mergers in an industry.... there have been many mergers in the telecom and cell phone industry but DOJ said AT&T and T-Mobile was one too many - and they shot the merger down.

I am going to give up quoting the DOJ complaint. Nobody gets it that the denial of the merger is not about city pairs, market share, or even fairness based on previous mergers completed (unlike Parker's fiasco AWA/US.) It’s about a corrupt management dumb enough to use email and public forums to talk about how they will trick the industry. All the while making a plea that they treat their own employees like Keller; while announcing a sincere desire to serve smaller markets, without closing a single current hub or crew base. Right. I live in PIT. If serious settlement talks were REALLY going on, does anyone believe the latest filing last week by AMR and U would have occurred? Of course not. RR

 

[wings396]

So basically, they have let everyone else merge which has reduced competition to the point where consumers MAY suffer. But they are blocking a merger that will effectivey compete with the 2 big boys that will dominate the industry, and have the size and power to crush AA & US as standalones. Not to mention that they will eventually control enough of the domestic market to control pricing and fees as they wish.....
Real nice way of thinking by the DOJ.
Why do they let Walmart keep expanding and crushing small businesses accross America one town after another? Does anyone think that they may be slowly eliminating competition with a goal of total consumer control at some point?

 

[jimntx]

Daddy, it's not fair. You let Delta and United go out and play. I'm going to my room and hold my breath until I die. And, then you'll be sorry.