UA's operational problems are related to IT issues and the lack of "slack" in the system - spares, reserve crews etc.
Sarcasm or not, Kev, the discussion highlights one of the outcomes of mergers which everyone knew up front but the results of which are wrestled with years later.
DL made it clear in its public statements about consolidation before it ever merged with NW that the only mergers DL would engage in would be those that took the DL name for the surviving company and were headquartered in Atlanta. UA also made it clear that it was not leaving Chicago. There was no doubt that FL’s MCO HDQ would close when WN bought them…. Loss of HDQs and many even of the associated jobs are part of the casualties of mergers.
But consolidation of HDQs is part of the benefit of mergers, with the other part being ability to reduce duplicate capacity. There was no doubt that CVG as a hub could not compete w/ NW’s far larger DTW and MSP hubs any more than MEM could stand and compete against ATL. PHX and DFW will both not survive as they exist today in an AA-US merger any more than JFK and PHL will. UA is nowhere near the point of consolidating its hubs because of the lack of labor agreements but DL and WN both recognized that you have to move quickly to get labor issues settled if you have any desire to obtain the financial benefits of the merger. UA’s revenue growth has trailed the industry for quite some time in large part because they cannot get out of the poor performing capacity in their network.
RASM growth matters because if your competitors continue to grow their revenue but you don’t and all competitors have the same similar costs, your profits will fall relative to your competitors. For years, the industry chased capacity – no one could afford to not add capacity when others did. Now, as the industry matures, everyone is chasing higher RASMs by pulling out capacity. Mergers are part of the way to get that excess capacity out. Carriers that continually cut the lowest performing part of their networks will have profit advantages over those that don’t.
…. Which explains part of the reason why a lot of people (me included) don’t believe AA’s plan of reorg based on growing capacity will work. They cannot keep adding capacity while others are reducing capacity and expect to compete on the same financial basis. New market capacity does not produce the same level of profits as established capacity. Someone has got to subsidize all of that growth. AA employees are not interested in subsidizing AA’s failed network strategies.
And AA’s intention to add capacity in key markets where it has already lost share to other carriers is even more problematic. Which of the competitors in NYC are going to roll over and let AA add capacity? ORD? DFW?.....
The reality is that there is no evidence in history of a network carrier regaining share it once lost to any significant degree. AA built its network strategy around key global cities, most of which it dominated and many of which were limited access for competitors– LHR and Latin America.
AA not only has to figure out how to compete in markets where it no longer has a protected market but also regain share in markets that are highly competitive and where other carriers have quickly moved in to take what AA has given up. They won’t give it back easily if at all.
Add in that AA’s costs will not be much lower than its competitors – if at all - and it is even more doubtful that AA can regain its position in highly competitive markets. Based on AA’s own court filings early in its BK, it proposed a CASM on par with but not superior to other network carriers, the same ones that AA needs to wrestle share back from.
Whatever operational cost advantage AA might have – and it isn’t clear they will have much of a cost advantage – will be offset by enormous costs of acquiring new assets. Airbus and Boeing who are splitting one of the largest aircraft orders in history aren’t about to tell AA their plan won’t work.
Too many people, including AA execs, have financial interests which keep them from doing the BEST thing for the company in pursuit of the BEST thing for their individual financial well-being. Compromised choices will result in a compromised result.
AA alone or AA plus US does not solve key strategic issues such as having enough size to compete in key global markets such as NYC, Asia, and continental Europe.
Pursuing a merger because it is the “next best thing” to going it alone will only result in increased failures and shrinkage at the hands of competitors – exactly what AA and US have done for a decade. Being #1 in a region – as some here like to tout about AA/US on the east coast – doesn’t change the outcome if AA and US simply become bigger by combining markets where they already are the dominant carrier – which constitutes all of their combined hubs except ORD and PHX – without growing to a size necessary to compete in key markets outside of those hubs.
And then there is the enormous cost and disruption of a merger plus the time it takes to make it all work – something that neither AA or US have at the hands of competitors who are ready and able to continue to grow and gain competitive advantage.
Add in that all of AA and US’ competitors all have strategic alternatives they can pursue in response to an AA-US merger or an AA standalone plan and it becomes much less likely that AA-US together can succeed or AA as a standalone can succeed at what they need to accomplish strategically.
If the key objective that both AA and US are seeking, independently or as part of a merger, is to grow to a size that they can compete with DL and UA globally and WN in the domestic arena, then the real question that has to be asked – and honestly answered – is whether that goal can be achieved. And if it cannot, then there have to be other alternatives considered, including selling out to others.
Those are not words that many people on here – largely AA and US employees want to hear – but failure to honestly choose the right answer instead of just the convenient one will only result in years of further decline.
Few companies are willing to admit that they have reached a point strategically that they cannot recover but it does happen and often results in the best outcome for all involved when that admission is made rather than continuing to fight a losing battle over years that destroys the company.
We will never know exactly what FL’s board and execs evaluated before they sold out to WN but I believe they asked these very questions and came to the conclusion that selling out was a better long-term outcome than continuing to fight against DL and WN in virtually every market in which they competed – without really winning.
AA people continue to move through the process of reorganization while AA mgmt presents the AA standalone plan. At the same time, AA people hear the AA-US merger as the other alternative. The questions have to be asked if AA will succeed at what it needs to do either alone or in a merger with US. If the answer is not firmly “yes” then continuing to pursue something which hasn’t worked out for either AA alone or others in the past expecting success this time is no different than the definition of insanity.
AA people need to ask whether they are just signing up for more cuts and failure or whether the long-term strategic needs of AA are being addressed and solved, setting up the company for long-term success – the only alternative that will provide long-term job stability and industry average or better compensation.
There are two ways to be fooled.
One is to believe what isn’t true; the other is to refuse to accept what is true.
Soren Kierkegaard
