DL expands SEA further with SEA-SFO flights

[Kev3188]

Something like that...

I'm sure there are performance guarantees in the AS/DL agreement, but most contracts also have clauses over bad faith dealings with each other.

If DL tried to sue AS, I suspect the lawyers and the courts would have a field day with that.

Exactly, though I'm not so sure they won't try.

Like I said awhile ago, this is simply a case of AS refusing to be bullied by DL, and being in a good enough position market-wise to be able to do so. DL apparently has the spare metal to fund their reaction. Will it backfire on the Eskimo? Maybe, maybe not.

 

[WorldTraveler]

you two seem to have this notion that AS has some divine right to have an unchallenged hub at SEA and that DL is being the villain while AS is some innocent victim.

If the contract allowed AS to get out of the contract as easily as you think it does and AS doesn't act, then they are apparently enjoying being beaten up or else they really don't have a legal case for trying to get out of the contract or DL isn't the threat that everyone seems to think they are to AS.

Take your pick.

Maybe DL thinks that AS is the bully for starting service into DL hubs and then adding low fares in order to justify their existence. You never considered that angle did you, Dr. Kev?

If being in a good enough position market-wise means that AS is willing to allow DL to compete with AS in their top markets, then it is certain that AS' share of the domestic market will shrink as DL builds its SEA presence.

At this point, it is certain that DL will have as large of a presence in SEA as they can and as large as is necessary to ensure the success of their flights.
AS will have no choice to provide the rest of the feed or terminate the contract even while DL is overlaying AS' west coast network with DL's own flights.

You can define success for AS any way you want but at this point, DL is not going to walk away and say they were just kidding.

 

[Kev3188]

Who said anything about getting out of a contract?

I have the notion that outside of their contractual obligations, AS is free to tell DL to pound sand. and that each are free to act/react accordingly.

Isn't that how the "free market" works?

 

[WorldTraveler]

well right here, Kev.

do you suppose that E is arguing that AS is going to sue DL to stay in the contract?
 

I'm sure there are performance guarantees in the AS/DL agreement, but the lack of ATI would prevent having a guarantee from DL setting up shop in AS's key markets.

That said, most contracts also have out clauses for bad faith dealings with each other. That would be an easy argument to make here.

If DL tried to sue AS, I suspect the lawyers and the courts would have a field day with it.

It's almost as unenforceable as non-compete clauses in an employment contract.

adding flights in each other's network is not bad faith. It is what is required because there is no ATI between US airlines in domestic markets.

AS cannot coordinate its commercial activities with either AA or DL.

AS and DL are indeed free to tell each other to pound sand but there are also contractual obligations which they have to provide.

All of these market additions by both AS and DL are all about the free market working, Kev.

AS just has to endure DL's flight additions in its primary hub which will come at a much bigger strategic cost to AS than a few flights that AS might add to DL hubs.

DL also has the abililty to make it a whole lot harder for AS to succeed in cities where AS flies including to DL's other hubs which is part of why they are terminating the ground handling contracts and forcing AS in some cases likely moving to other parts of the airport.

 

[Kev3188]

Great, so be it.

Like I said; free to act/react however they feel they need to outside the bounds of their contractual agreements.

Dropping the handling agreements and making AS move to other areas just seems petty, but again, so be it.

 

[WorldTraveler]

if staying in the same location and ground-handling was important, then the clauses would have been inserted in the contract for both sides.

Since it is apparently not there, then DL is free to do what they need to do and AS can do the same. Apparently if it comes down to adding flights, DL has added and likely will add far more capacity to AS' markets than what AS can add in DL markets. For AS, this is of far larger strategic significance since it is playing out in their home and hub.

DL will have their SEA hub complete with domestic feed. DL at one time was willing to let AS provide a lot of it but now DL prefers to do as much on its own and have a strong local SEA presence as well

BTW, with these latest flight additions, DL now has 1/3 of the number of seats that AS has in SEA. and DL has been growing SEA at 20-25% for several years.
Given that many of these flights are being operated on 76 seaters which could easily be upgraded to mainline flights, the potential for DL to become a major strategic challenge to AS is very much present.

 

[Force Majeure]

Kev,you are more than welcome to begin the list with 1. what I have said that is strategically wrong and 2. an acknowledgement that you have miscalled some pretty major strategic aspects about the industry.

Let me be the first to congratulate you for patting yourself on the back for being correct on all the (qualified) strategic predictions you have made that have not been proven wrong (by people taking the time do so).

 

[Kev3188]

if staying in the same location and ground-handling was important, then the clauses would have been inserted in the contract for both sides.

Since it is apparently not there, then DL is free to do what they need to do and AS can do the same. Apparently if it comes down to adding flights, DL has added and likely will add far more capacity to AS' markets than what AS can add in DL markets. For AS, this is of far larger strategic significance since it is playing out in their home and hub.

DL will have their SEA hub complete with domestic feed. DL at one time was willing to let AS provide a lot of it but now DL prefers to do as much on its own and have a strong local SEA presence as well

BTW, with these latest flight additions, DL now has 1/3 of the number of seats that AS has in SEA. and DL has been growing SEA at 20-25% for several years.
Given that many of these flights are being operated on 76 seaters which could easily be upgraded to mainline flights, the potential for DL to become a major strategic challenge to AS is very much present.

Right. Like I said, both are free to act/react as they see fit.

 

[WorldTraveler]

in case you missed it, AS is offering elite qualifying miles on any of its int'l partners which is clearly a disss to DL... but it may or may not give AS the advantage if other carriers aren't able to obtain the connecting flights on AS that is apparently one of DL's reasons to add more capacity.

AS and DL will continue to push on each other to the maximum they can since it is apparent that neither are going to back down.

 

[Kev3188]

Acting/reacting as they see fit.

Excellent.

 

[WorldTraveler]

Given that DL's pretax profit for this year will be half of ALK's total revenues and DL expects an even stronger 2014, DL has the financial depth to push for its strategic objectives.

With profit sharing that will approach $500M for this year (to be paid in Feb 2014), DL employees will certainly help the company achieve its strategic objectives in exchange for around an extra month's pay.

 

[topDawg]

first, it is VERY kind of you to apologize.

We could diffuse a lot of tension on this board if that type of response was more common.

You have gained a great deal of respect and I will do my best to respond with your kindness in mind.

Thank you.

People don't realize that the beyond NRT flying is precisely what gives DL the size it has over the Pacific to NRT. If DL pulled down its NRT hub, it would lose its size which is a big reason why NW before and DL now enjoys such a huge average fare advantage to NRT over its peers, including both AA and UA.

Thus, NW always treated the beyond NRT operation as "just keep it breakeven." DL appears to be more willing to say it has to be profitable which will probably mean using lower CASM aircraft like the 330s and shift the 747s to other parts of the network.

DL's focus on Haneda is because the more HND flights DL operates, the fewer competitors can operate. DL has apparently been successful at convincing the US government from agreeing to any improvements to HND flights between the US and Japan. DL would rather be stuck with 2 less than ideal HND flights than to allow JAL or ANA (by themselves or with AA or UA) to be able to fly better-timed flights to HND where ANA and JAL have much larger hubs.

DL has said NRT generates 10% of DL's revenue - or about $4 billion/year, probably the largest foreign city for any US airline.

DL will fight hard to protect that revenue and to not walk away from it. By cutting off the beyond-NRT flights, DL would automatically be cutting off a huge amount of its TPAC traffic to Japan.


Two US carriers can't agree not to add service to each other's domestic markets; they can't coordinate any schedules or fares.

The AS-DL contract according to what both have said on earnings conference calls contains minimum performance requirements in a long-term contract. IOW, AS and DL both have to deliver a certain number of connecting passengers to each other. Both have customer service, frequent flyer, and operational standards.

The contract is long-term and supposedly has substantial penalties.

Thus, if DL adds flights of its own to/from SEA to ensure DL's own feed to/from int'l flights, then AS will have to still provide the same number of seats... either meaning they will have to feed some of DL's own domestic flights from SEA or DL can add even more int'l flights and AS will have to feed them using the cities that DL does not serve from SEA.


AS' gets its feed for AS flights into DL's hubs... but apparently DL has already told AS that DL will not codeshare on AS flights that duplicate DL flights... IOW DL is not going to allow AS to add flights to DL hubs that duplicate DL flights.
DL wants to provide AS with feed into markets that DL does not serve... such as to the PNW to Alaska, Hawaii, and Mexico.

DL can very much build its own domestic mini-hub in SEA and force AS by the contract to either provide DL with feed or pay the penalties or breakup fees.

DL apparently has no problem providing AS with enough feed to meet DL's requirement but is trying to force AS to feed DL onto at SEA, a task that gets harder for AS to do if DL is also operating in some of those same routes that DL relied solely on AS.

 

I haven't heard DL make too many comments about specific hub profitability but for the latest quarter they said that NRT was the highest margin hub and that ATL's profit margin improved by 3 points because of WN's pullback.

The NRT comment seemed to be to quell ideas that DL's pulldown of SFO-NRT meant the NRT hub as a whole is in trouble... and I don't think it is. DL needs to regauage it but NRT is still a viable hub.

ahem....I don't think i would keep making so many bold statements.
just a little advice.  

 

[FWAAA]

Rumour on Flyertalk today is that NRT-PEK ends in March.    Makes sense given the trend toward overflying Tokyo.   

 

[WorldTraveler]

since the NRT hub is built in pairs of transpac and intra-Asia flying, it was a given that something would be pulled down to balance out NRT-SFO. PEK is one of the shortest intra-Asia segments left, has operated with a 763 for years, and can be easily served from the mainland.

DL will end up with a higher percentage of the local SFO int'l market with the buildup of DL's gateways at LAX and SEA than if DL had retained the SFO-NRT flight.

Despite the fascination with pulling down the NRT hub, the intra-Asia operation exists to create the largest transpac system possible which does give DL an advantage in the US-Japan market.

DL is also flying 2 744s from the west coast to NRT plus 2 767s to HND despite the schedule. The chances real high that other competitors will follow UA in pulling down more Japan routes. Remember DL has a 10% mainline CASM over UA.... that is a whole lot on a long int'l flight.

Pan Am and later UA was never as strong from Japan as NW and later DL has been which is why UA pulled down so much Japan in favor of HKG and China flying as aircraft became available to fly them nonstop . DL isn't walking away from Japan even though it is building up the rest of its network outside of Japan.

 

[Kev3188]

Rumour on Flyertalk today is that NRT-PEK ends in March.    Makes sense given the trend toward overflying Tokyo.   

 
Yep, it ends effect 29. Mar. 2014...