BoeingBoy
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Delta Schedule Changes
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signals
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From what they say, it is to Delta's advantage to do all it can to take AA. With S America, Delta would rule the world, sort of speak. I knew it would deal with the antitrust issues by cutting routes. Should we take into consideration that AA will also inevitably cut routes?
This just simply fascinates me, and I don't mean that in a bad way!
signals
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That happens especially when you say alot 🙄
Hypothetically, IF..BA/QF and JL...all bought a piece of AA, without AA having to give up one single route, how in HEL* could DL top that.
DL stands as much of a chance of getting AA, as Rush Limbaugh stands a chance of getting some "luvin" without paying for it. ! 😛
DL stands as much of a chance of getting AA, as Rush Limbaugh stands a chance of getting some "luvin" without paying for it. ! 😛
Delta is still disadvantaged with respect to LHR. Delta was fully capable of competing with AA to LHR.
Which is it?
WorldTraveler
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which is why I put LOCAL in all caps.....
see below....
It is very fascinating…. Because it involves thinking strategically – and analyzing the strengths and weaknesses of each player.
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A potential combination of DL and parts of AA would be driven by the same increase in combined revenue that occurred with DL+NW and UA+CO. It has long been accepted in the airline industry, which is a network business, that larger size translates into higher revenues. Nearly all successful mergers in the airline industry as well as in similar industries such as telecommunications and media – which also have size driven benefits – have resulted in increased revenues….. ONE plus ONE is MORE THAN TWO.
Since the first round of mergers in the industry occurred, AA’s ability to obtain revenue premiums across its system have slowed in the domestic, transatlantic, and transpacific entities with only being the only entity where AA has demonstrated it can increase its revenues at rates comparable to or better than other carriers. UA has obtained average fares higher than AA in every transpacific route on which the two compete – which is the majority of AA’s transpacific system. To LHR and Brazil, DL is now obtaining average fares comparable with AA’s even though LHR is a relatively new market for DL. To/from LHR and in domestic markets, AA is retaining its position only because of its size – but it is not obtaining the revenue premiums it once did. AA is unable to close the revenue gap it has on the Pacific against DL and UA, even with a joint venture with JL.
The only reason where AA is holding its own is in Latin America, although UA has grown its revenue far faster than the industry as it has reaped benefits of its merger with CO…. CO was traditionally stronger in northern S. America and Central America while most of UA’s presence was in deep S. America… combined they have a much larger network – although still smaller than AA. But DL and UA are operating some routes with comparable revenue per flight as AA – they are just hindered by AA’s overall size in the region. Inclusion of LAN-TAM in oneworld, if permitted by the US (and it is possible that they may be not be permitted to obtain anti-trust immunity or a joint venture) make it necessary for DL or UA to act if they have any desire to become competitive in Latin America. AA’s advantage of course is that it is the only US carrier that offers service from MIA to Latin America; even though Latin America is the smallest global region, there is no other global region where only one carrier has a presence in the largest gateway to the region. (ie AA, DL, and UA all compete in the NYC-Europe and LAX-Asia markets).
Thus, every airline is trying to increase its revenues in markets where they are able to do so by minimizing AA’s presence – but that ultimately makes AA’s presence in Latin America, and MIA-Latin America specifically, the most valuable part of its network.
It is a given that some other US airline will attempt to buy at least AA’s MIA-Latin America operation, and perhaps a lot more of its network. UA could probably only buy MIA-Latin America since there would be antitrust issues with overlap on the rest of AA’s network. US could buy most of AA’s network w/ few antitrust issues – but it would not change the fact that AA-US would still be #3 in the transatlantic and transpacific regions and probably #4 in North America – and US has long shown that they do not have the size to effectively compete with the larger network carriers and thus do not generate revenues on par. IN addition to the lower quality offer (from a financial perspective – more debt necessary) AA’s creditors would thus be challenged if they gain anything by combining with a smaller airline like US if they want to maximize their investment. Or do they sell off as much of AA to a carrier that can generate the greatest revenue premiums with the majority of AA’s network. DL is able to absorb most of AA’s network with the least amount of antitrust issues.
The reason why investments from foreign airlines won’t make a difference in AA’s long term outlook is because AA still will have to compete across the majority of its network against larger carriers – DL, UA, and WN domestically and DL and UA on TATL and TPAC routes. Although “metal neutral” joint ventures are supposed to create a “revenue merger,” none so far have been able to take two carriers in different countries who are at a disadvantaged position and move them to an advantaged position relative to its competitors.
It is AA’s ability to generate revenue premiums post-BK that will become a key consideration when offers are made for AA – and they will come.
It will be very interesting to watch the next phase of consolidation in the industry – but as with all things in business it will be driven by who has the most financial resources and is best able to demonstrate their ability to use resources.
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Yes, Tom, AA is very strong in Latin America and has a lock on the market from MIA…
But the Latin America market is the last region where there are still significant barriers to entry or for existing carriers to expand…. Most of Europe has had Open Skies with the US for several decades; much of Asia has it now. History shows that the majority of AA’s revenue has come from limited access markets or those where it has enjoyed a very strong competitive position relative to its competitors. But AA has not done well in markets where they face a larger competitor or when smaller, more nimble competitors enter AA markets.
The argument can be made that AA has not had the financial strength to fight off competitors because it has been slow in reorganizing… but the question remains whether AA will have the financial strength to retake markets which it has ceded to other carriers when there is very little evidence that any carrier has been able to do that in the past – and the vast majority of the industry is on strong enough financial footing that most carriers are not only holding onto their own share but taking some of it from AA. As fuel prices continue to increase, it will be harder and harder for AA to regain share against carriers who are reducing capacity as a natural consequence of reduced demand that comes from higher ticket prices.
Thus, the real concern long term is that AA is building a significant part of its emergence on its position in Latin America which has been largely a limited access market and one where AA’s size has made it difficult for other carriers to expand. As market entrance barriers fall in Latin America, it is quite likely that AA will face very strong competitive assaults. Even in LHR, which is still a limited access market given that there are far fewer slots than desired by US carriers and if available are very expensive to acquire, other carriers – PMCO and DL both made significant progress in gaining access to high quality revenue. AA’s ability to restructure around a region where competitive pressures will grow may be limited as it also tries to support and defend a much larger network where AA has not been as successful in standing up to competitors.
The value proposition to competitors in buying AA best assets will continue to grow, esp. as the industry shrinks in the face of higher and higher fuel pressures.
Throw in AA’s continued labor difficulties that make restructuring even more difficult and the economic justification for reallocation of AA’s best assets only grows.
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E,
This forum has created an artificial dividing line between airlines even though all US airlines aggressively compete with virtually every other. No airline is an island of itself any more than any person is or can be.
Indeed, those companies and individuals who ultimately succeed long term at whatever they do are those that honestly assess their strengths and weaknesses, learn from the mistakes of not only their past but also the past of others, and adapt to the realities and challenges of a constantly changing world.
AA will remain a very interesting case study as it continues to try to restructure even as challenges around it grow. Because of AA’s size and the value of its assets, its restructuring efforts will continue to attract a great deal of interest and the implications of whether AA succeeds or fails will spread throughout the airline industry.
But the Latin America market is the last region where there are still significant barriers to entry or for existing carriers to expand…. Most of Europe has had Open Skies with the US for several decades; much of Asia has it now. History shows that the majority of AA’s revenue has come from limited access markets or those where it has enjoyed a very strong competitive position relative to its competitors. But AA has not done well in markets where they face a larger competitor or when smaller, more nimble competitors enter AA markets.
The argument can be made that AA has not had the financial strength to fight off competitors because it has been slow in reorganizing… but the question remains whether AA will have the financial strength to retake markets which it has ceded to other carriers when there is very little evidence that any carrier has been able to do that in the past – and the vast majority of the industry is on strong enough financial footing that most carriers are not only holding onto their own share but taking some of it from AA. As fuel prices continue to increase, it will be harder and harder for AA to regain share against carriers who are reducing capacity as a natural consequence of reduced demand that comes from higher ticket prices.
Thus, the real concern long term is that AA is building a significant part of its emergence on its position in Latin America which has been largely a limited access market and one where AA’s size has made it difficult for other carriers to expand. As market entrance barriers fall in Latin America, it is quite likely that AA will face very strong competitive assaults. Even in LHR, which is still a limited access market given that there are far fewer slots than desired by US carriers and if available are very expensive to acquire, other carriers – PMCO and DL both made significant progress in gaining access to high quality revenue. AA’s ability to restructure around a region where competitive pressures will grow may be limited as it also tries to support and defend a much larger network where AA has not been as successful in standing up to competitors.
The value proposition to competitors in buying AA best assets will continue to grow, esp. as the industry shrinks in the face of higher and higher fuel pressures.
Throw in AA’s continued labor difficulties that make restructuring even more difficult and the economic justification for reallocation of AA’s best assets only grows.
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E,
This forum has created an artificial dividing line between airlines even though all US airlines aggressively compete with virtually every other. No airline is an island of itself any more than any person is or can be.
Indeed, those companies and individuals who ultimately succeed long term at whatever they do are those that honestly assess their strengths and weaknesses, learn from the mistakes of not only their past but also the past of others, and adapt to the realities and challenges of a constantly changing world.
AA will remain a very interesting case study as it continues to try to restructure even as challenges around it grow. Because of AA’s size and the value of its assets, its restructuring efforts will continue to attract a great deal of interest and the implications of whether AA succeeds or fails will spread throughout the airline industry.
topDawg
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well Every non-us airline in the world could buy a piece of AA if it wanted, but it couldn't stop a take over from US or DL(or UA/VX/B6/ etc etc)
Us has a 25% cap on non-us ownership. This blows a big hole in your plan.
oh and for US based labor that could be a very, very, VERY bad thing. JL is fresh out of BK, and QF has been in the news because it is out source crazy. Yeah that sounds like a great idea. lol. you must have been management at AA
anyways, you guys don't need to get over worked on these cuts, 2014 is just around the bend and Delta is going to have to add a good bit of capacity back into the TATL market place. (money losing or not.) The more they cut now, they more they add later. 😉
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glad you're back, Dawg.
It is not a given that DL is interested in continuing joint ventures.... there is a point when your size is larger than the other party in the JV and there is less and less value in you sharing anything w/ anyone. If DL gains substantially more access to LHR and a much larger position in Latin America, it may decide that in order to get government approval it will give up its joint ventures. Remember that DL only agreed to a joint venture with AF AFTER the merger and when DL was looking for access to LHR which AF provided - with KL providing the- then NW operated flights. Keep in mind that if BA convinces DL to move to oneworld, then the current DL slot portfolio at LHR might have to be returned to AF/KL. Note that DL has shown no interest in developing a joint venture with KE in Asia.... why should DL agree to share its revenues with anyone in Japan when DL's transpacific service is larger than JL and NH combined and the Japanese market is far larger than the Korean market, even if the latter is growing.
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With respect to the pilots, I think DL could make a pretty strong argument that it is reducing more RJ capacity.... 50 seaters will continue to be parked as fuel continues to increase - which it will. RJ capacity will be made up of 70-76 seaters but the lifespan for 50 seaters - which are still the bulk of the RJ fleet - will be phased out in the next 5 years or so... and probably whichever airline can do it fastest will obtain the greatest financial benefits.
It is not a given that DL is interested in continuing joint ventures.... there is a point when your size is larger than the other party in the JV and there is less and less value in you sharing anything w/ anyone. If DL gains substantially more access to LHR and a much larger position in Latin America, it may decide that in order to get government approval it will give up its joint ventures. Remember that DL only agreed to a joint venture with AF AFTER the merger and when DL was looking for access to LHR which AF provided - with KL providing the- then NW operated flights. Keep in mind that if BA convinces DL to move to oneworld, then the current DL slot portfolio at LHR might have to be returned to AF/KL. Note that DL has shown no interest in developing a joint venture with KE in Asia.... why should DL agree to share its revenues with anyone in Japan when DL's transpacific service is larger than JL and NH combined and the Japanese market is far larger than the Korean market, even if the latter is growing.
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With respect to the pilots, I think DL could make a pretty strong argument that it is reducing more RJ capacity.... 50 seaters will continue to be parked as fuel continues to increase - which it will. RJ capacity will be made up of 70-76 seaters but the lifespan for 50 seaters - which are still the bulk of the RJ fleet - will be phased out in the next 5 years or so... and probably whichever airline can do it fastest will obtain the greatest financial benefits.
eolesen
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I don't think DL will seriously consider oneworld. They get to be the big fish right now, and i cant see a situation unfolding where Glen would want to give up anything he's built up over the past few years.
At the very least, the JV on US-JP would go away, and there could be a case for wiping out the fifth freedom rights as well. They'd also have to dump the partnership with Virgin Australia, erasing any gains made in the US-AU markets. Less clear in Latin America where Skyteam is weak and oneworld is strong. The partnership with AM is probably a non-issue --- MX is still technically a member of oneworld but they could be dropped. The bigger nit is the investment in GOL, as there's a good chance that LATAM will stick with oneworld (decision due "soon" from what I've been told). I also wouldn't rule out having to make further slot concessions in the US-UK market. At the very least, DL's holdings would have to go to another US carrier.
At the very least, the JV on US-JP would go away, and there could be a case for wiping out the fifth freedom rights as well. They'd also have to dump the partnership with Virgin Australia, erasing any gains made in the US-AU markets. Less clear in Latin America where Skyteam is weak and oneworld is strong. The partnership with AM is probably a non-issue --- MX is still technically a member of oneworld but they could be dropped. The bigger nit is the investment in GOL, as there's a good chance that LATAM will stick with oneworld (decision due "soon" from what I've been told). I also wouldn't rule out having to make further slot concessions in the US-UK market. At the very least, DL's holdings would have to go to another US carrier.
eolesen
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Hmmm, not so sure about that. The Eurozone is looking like a minefield for the next couple years, and It doesn't help that AF is sitting right in the middle of it. Germany is holding on better than France, and LH is also on a sounder financial footing (not having competing hubs tends to help...). BA is relatively isolated given that the UK opted out of the Euro, but has exposure via IB and Spain.
If the debt crisis continues, it wouldn't surprise me to see TATL capacity fall back even further, especially to the second tier cities.
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good comments, E.
Remember, though, that DL gave ATI for its TATL system to AF in order to gain access to LHR. You have to wonder if they would rather just gain their own position at LHR, couple that w/ their own continental Europe system, and forget about JVs with anyone... cooperation, yes but I'm not sure ATIs make sense as the industry continues to consolidate.
Power is fine but if you the financials don't work it doesn't make sense to hold onto power.
AF along with the rest of southern Europe esp. will face alot of restructuring issues over the next couple years. Who knows if it is worth it for DL to continue to share revenues with them.
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It is true that smaller cities will feel the pain first but once you get rid of a half dozen or more medium size carriers, then dynamics in the European industry could change alot.
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Despite people continuing to believe that DL will walk away from its intra-Asia flying, I would strongly bet that its margins on intra-Asia flying are as good as if not better than on its US domestic flying. They would sacrifice the possibility of having a JV w/ a Japanese carrier before they would walk away from the right to carry intra-Asia traffic.
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All kinds of partnerships come up for consideration.... but I think the only real desire an airline the size of DL or UA have its to be able to codeshare to distribute its traffic within various global regions. Thus, the partnership with Gol and AM suffice for what DL needs. And even a JL and AF/KL relationship within Europe and Asia-Pacific may be enough.
Once again, if DL decides to ditch its ATI/JV with AF, then the slots they use to LHR NOW would likely go back to AF/KL.
If DL picks up the partnership with QF and dumps Virgin, then they "move up" in the US-Australia market.
DL could benefit from a partnership in HKG and would likely be able to add service based on its presence there and a stronger partnership. Whether any of the current Skyteam partners would move to oneworld would be a question but I am betting they would.
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What is certain is that alot of conventional wisdom about what the airline industry needs will be re-examined as the next round of consolidation takes place.
Remember, though, that DL gave ATI for its TATL system to AF in order to gain access to LHR. You have to wonder if they would rather just gain their own position at LHR, couple that w/ their own continental Europe system, and forget about JVs with anyone... cooperation, yes but I'm not sure ATIs make sense as the industry continues to consolidate.
Power is fine but if you the financials don't work it doesn't make sense to hold onto power.
AF along with the rest of southern Europe esp. will face alot of restructuring issues over the next couple years. Who knows if it is worth it for DL to continue to share revenues with them.
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It is true that smaller cities will feel the pain first but once you get rid of a half dozen or more medium size carriers, then dynamics in the European industry could change alot.
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Despite people continuing to believe that DL will walk away from its intra-Asia flying, I would strongly bet that its margins on intra-Asia flying are as good as if not better than on its US domestic flying. They would sacrifice the possibility of having a JV w/ a Japanese carrier before they would walk away from the right to carry intra-Asia traffic.
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All kinds of partnerships come up for consideration.... but I think the only real desire an airline the size of DL or UA have its to be able to codeshare to distribute its traffic within various global regions. Thus, the partnership with Gol and AM suffice for what DL needs. And even a JL and AF/KL relationship within Europe and Asia-Pacific may be enough.
Once again, if DL decides to ditch its ATI/JV with AF, then the slots they use to LHR NOW would likely go back to AF/KL.
If DL picks up the partnership with QF and dumps Virgin, then they "move up" in the US-Australia market.
DL could benefit from a partnership in HKG and would likely be able to add service based on its presence there and a stronger partnership. Whether any of the current Skyteam partners would move to oneworld would be a question but I am betting they would.
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What is certain is that alot of conventional wisdom about what the airline industry needs will be re-examined as the next round of consolidation takes place.
