Delta-AA

[eolesen]

Well one flaw with the plan is that businessmen don't like delays and cancellations.

Yep. We don't. And right now, AA's running a better airline than UA.

They should read Gordon Bethunes book and take head on what he says about unhappy mechanics. New planes may help reliability but they don't stay new that long .

Didn't Gordon turn around CO, which is now UA, which now has the worst dependability of all the majors?....

Dependability and reliability of an airline depends on a lot more than just its mechanics.

 

[WorldTraveler]

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

 

[wings396]

Still think that your assumptions of PHL & JFK are wrong...

 

[WorldTraveler]

Still think that your assumptions of PHL & JFK are wrong...

I would be curious to hear the basis of your beliefs.

I don't think there is any risk to PHL... US is stable there, has what is likely a protected and profitable operation that does have growth potential to Europe, Asia, and potentially Latin America. On a scaled down basis to AA, DL, and UA in NYC, PHL has significant int'l growth opportunities esp. to Asia and Latin America.

But AA's presence at JFK continues to shrink and JFK is part of the larger NYC market in which AA still has to overcome much more larger network competitors as well as low fare competitors....

Even if AA-US merge and the NE focus shifts to PHL and DCA, how does AA-US have a viable presence in NYC which is a much larger market than either PHL or WAS and which also is the basis for much of the corporate revenue which DL and UA have managed to shift from AA over the last few years.

Note that in the NE I believe US' sustainability is better than AA's.... but I'm not sure that putting AA/US together will solve the problems that afflict AA in that region or provide a basis for long-term success for the combined entity.

 

[Tater Salad]

When you are back on the floor again thanks to the Baker Letter, you will see that it is business as usual. Mechanics may say they are pissed off, but in reality, SSDD!

Well, I can speak for ORD. MOST mechanics are doing just enough to keep from getting fired. Apathy is worse than I have ever seen it.

 

[WorldTraveler]

Well, I can speak for ORD. MOST mechanics are doing just enough to keep from getting fired. Apathy is worse than I have ever seen it.

and again, what is the basis for expecting that to change or for AA to compete long-term? Cutting salaries and then having employees who work far less efficiently than their peers is no formula for long-term success.

 

[wings396]

While I don't have the time to write a short story on the
PHL vs JFK debate, I will say this...
Are both stations profitable for their respective carriers?
Does one draw traffic away from the other?
Are both areas large enough to support their current operations?
Ideally, I realize that your hopes are for the combined airlines to scale back at JFK, leaving a bigger piece of the pie for DL so that they can dominate there too.
As it stands now, UA has EWR, US has PHL, and AA has what they have at JFK with plenty of passengers to go around even though they are all in close proximity to each other.
So yes, I can see both stations staying as is or even expanding should US & AA merge. Both markets have a strong O&D base.

 

[FA Mikey]

I wonder why BNA and RDU never worked or PHL and PIT.

 

[wings396]

Well BNA & RDU didn't have the same O&D as PHL & JFK, nor did they have the international traffic of those areas.
PIT came down to high costs, and it didn't have the strong O&D that PHL did...
So there you have it.....

 

[WorldTraveler]

BNA and RDU was an attempt to divide north-south flows to avoid DL at ATL and PI/US at CLT w/ the result that both AA hubs were too small and too dependent on flow traffic to succeed.
PIT's real problem was that US was not big enough in the midwest against larger carriers that also had more powerful hubs/hub combinations - AA and UA at ORD, NW at DTW- along w/ the costs of a new terminal at PIT that were far more than US could afford.

AA's presence at JFK continues to shrink, including in the transcon markets which are their backbone. B6 and DL are as large or larger in every transcon market except for LAX. While people want to argue about the revenue premium AA gets in the transcon local markets, other competitors get as much or more revenue PER FLIGHT - which means they are using the strength of their hub to offset their weakness in the local market.

You can't be a competitive carrier in a shared hub market if you only succeed in select destinations from a "hub" while your competitors have a viable presence in dozens more markets.
ORD is the last real two airport w/ two network carrirers hubbed there - and AA and UA both have fairly similar-sized domestic operations which is keeping AA in the game there.

It is a stretch at best to believe that AA can make it long term in NYC alongside bigger network and low cost carriers. AA is headed down the same path US took in NYC which for US resulted in them swapping away 1/4 of the slots at LGA.

those are market realities... whether DL benefits from them or not.

 

[BoeingBoy]

PIT came down to high costs

That was what they blamed it on but the costs were in line with PHL. At the time did you notice that they always compared PIT's cost with CLT when they talked about the "high" cost of PIT - one of the lowest cost airports it's size in the country, and never with PHL.

What it amounted to was that US wanted a NE hub with a bigger metro population than PIT and PHL was the only city remaining. EWR and DC were already taken, JFK didn't have space for a true single-airport hub, BOS was not conveniently located for a hub.

Jim

 

[FA Mikey]

Well BNA & RDU didn't have the same O&D as PHL & JFK, nor did they have the international traffic of those areas.
PIT came down to high costs, and it didn't have the strong O&D that PHL did...
So there you have it.....

Boeingboy, tells it like it is.

Sorry you try and try and yet still impossible to give answer to the question, what does U bring to the table.

 

[eolesen]

You can't be a competitive carrier in a shared hub market if you only succeed in select destinations from a "hub" while your competitors have a viable presence in dozens more markets.
ORD is the last real two airport w/ two network carrirers hubbed there - and AA and UA both have fairly similar-sized domestic operations which is keeping AA in the game there.

It is a stretch at best to believe that AA can make it long term in NYC alongside bigger network and low cost carriers. AA is headed down the same path US took in NYC which for US resulted in them swapping away 1/4 of the slots at LGA.

those are market realities... whether DL benefits from them or not.

There's the qualifier --- network carriers... Never mind the WN and US hubs at PHX, or the WN, UA, and F9 hubs in DEN.

Then there's airports like LAX, which certainly behave like a hub for AA and WN, yet also supports sizeable operations for UA, DL, and AS....

If LAX manages to support DL and UA, then I suspect that AA will manage to do just fine in NYC.

 

[wings396]

There's the qualifier --- network carriers... Never mind the WN and US hubs at PHX, or the WN, UA, and F9 hubs in DEN.

Then there's airports like LAX, which certainly behave like a hub for AA and WN, yet also supports sizeable operations for UA, DL, and AS....

If LAX manages to support DL and UA, then I suspect that AA will manage to do just fine in NYC.

No, that's impossible NYC belongs to Delta, and only Delta......this can't be true.....

 

[DCaf]

…. 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.

The above is the standalone plan isn't it, where AA tries to grow 20% internally? I thought you favored that.