GAO throws up Red Flags over US/AA Merger

[UPNAWAY]

The GAO method is seriously flawed looking at connect routes. I am to assume a PHX-DFW-MSY route is the same as a PHX-CLT-MSY?

 

[FWAAA]

We can't give up even one slot at DCA ,we need to fight tooth and nail.

If Parker hadn't been such a short-sighted dumbass two years ago, and had he not fought "tooth and nail" to enrich DL by handing DL more than 130 LGA slot pairs in exchange for just 42 DCA slot pairs, he wouldn't be faced now with giving up any DCA slots.

Instead, he'd be giving up some LGA slots to bring the new AA LGA slot total down to about 50% of the LGA slots and the combined US and AA DCA slots would equal just about the same as US currently holds. New AA would have about 50% of the slots at both LGA and DCA.

 

[WorldTraveler]

keep in mind that AA passed up many opportunities when others thought they would go into C11 - where it would have been much easier to acquire them - saying all the time that they would not destroy stockholder equity.
Then when AA did enter BK, they fought any idea of a US merger.

Remember also that the slot deal took 2 years to be approved, longer than it has taken any merger. It is very possible that there were termination penalties on both sides that prevented Parker from backing out of the deal even though it undoubtedly became apparent that it was not the right thing to do any more.

Parker could not continue to sit on 120 unprofitable flights per day. If he had thought he had a chance at gaining those slots, I'm sure he would have held onto them.

Strategically, the end result is as you paint it... DL has gained a position in NYC that AA/US will not be able to top giving UA a similar size competitor while AA/US will still be the dominant carrier at the preferred airport for DC. They will probably also be given the opportunity to convert some add'l flights to longhaul outside perimeter flights in the future which will make it harder on UA at IAD over time.

 

[CactUSmx]

US Airways should not have to give up any slots if DCA is there HUB....If US Airways is required to divest slots at DCA then Delta should give up slots in Atlanta and JFK, United should give up slots at Newark and IAD. Why have Hubs??? according to these idiots No airline should control more than 50% of any airport.

 

[WorldTraveler]

ATL is not slot controlled.. .neither is IAD etc. LGA, JFK, EWR, DCA are. No one objects to hubs but the problem is when competitors can't gain access to the market to offer an alternative. The problem is precisely when a carrier decides to put a hub at an airport where they require a majority of the slots to make the hub work. DL does not have a majority of the slots or seats at either JFK or LGA. UA does at EWR and they had to divest slots. The combined AA/US slot portfolio at DCA would be comparable in terms of percentage of total slots to what UA operates at EWR.

The problem is that US already controls 55% of the slots at DCA, regardless of the number of seats they offer. Other carriers can either serve the same points US serves on their own regional jets or they can compete in other markets by adding service and reducing fares, which is what B6 did with BOS-DCA, a market in which the fares have fallen substantially.

It is to be expected that Parker is trying to hold onto the combined AA/US slots but there is no example of where the US government allowed a carrier to be as concentrated at a slot controlled airport as the combined AA/US would be at DCA if they don't divest slots.

We'll know soon enough.

 

[FWAAA]

US Airways should not have to give up any slots if DCA is there HUB....If US Airways is required to divest slots at DCA then Delta should give up slots in Atlanta and JFK, United should give up slots at Newark and IAD. Why have Hubs??? according to these idiots No airline should control more than 50% of any airport.

You are forgetting/ignoring some basic differences.

ATL is not slot controlled. Any airline could increase service to/from ATL if they wanted to. Same for IAD, an airport that has been under-utilized since it was built.

DL didn't get bigger at ATL or JFK (which is slot-controlled) in the past few years by engineering a trade of scarce slots, like US and DL did with their LGA-DCA slot swap. THAT's why the government demanded some concessions in exchange for approving the deal.

UA did give up some slots at EWR to get the UA-CO merger approved. CO already dominated CO, having built it up from the remnants of failed PeoplExpress. So when UA and CO merged, they offered to give up some slots to WN.

If I were in charge, no airline would be permitted to create a true connecting hub at a congested, slot controlled airport like LGA or DCA. Both are the desired O&D airports for two huge, important cities and both cities feature alternative airports where hubbing makes more sense (JFK and IAD). If the airlines are having difficulty filling their flights with O&D traffic at LGA and DCA, then the logical thing would be for the number of slots to decrease, and reduce the congestion. jetBlue began when LGA was bursting at the seams and JFK was relatively empty during the middle of the day, making JFK a perfect location for a connecting hub at the time.

Two years ago, the government demanded slots at LGA and DCA to go to new entrants (who would presumably offer lower fares) and at the time, it was obvious that slots would have to be given up if AA and US eventually merged.

 

[swamt]

UA didnt give up their slots, they leased them to WN, not a permanent divestiture.

I don't have the facts on this. But I do believe we were told by the company that we own those slots, not leased. I could be wrong, but I don't think we lease any slots. Slots were awarded by bids and forfeitures. Again, going by memory here, if I am wrong I will correct.

 

[FWAAA]

I don't have the facts on this. But I do believe we were told by the company that we own those slots, not leased. I could be wrong, but I don't think we lease any slots. Slots were awarded by bids and forfeitures. Again, going by memory here, if I am wrong I will correct.

The slots were leased, apparently on a permanent basis:

The department conducted a thorough investigation. The proposed merger would combine the airlines’ largely complementary networks, which would result in overlap on a limited number of routes where United and Continental offer competing nonstop service. The largest such routes are between United’s hub airports and Continental’s hub at Newark airport, where Continental has a high share of service and where there is limited availability of slots, making entry by other airlines particularly difficult. The transfer of slots and other assets at Newark to Southwest, a low cost carrier that currently has only limited service in the New York metropolitan area and no Newark service, resolves the department’s principal competition concerns and will likely significantly benefit consumers on overlap routes as well as on many other routes. The slot transfer is through a lease that permanently conveys to Southwest all of Continental’s rights in the assets, in compliance with FAA rules.

http://www.justice.gov/opa/pr/2010/August/10-at-974.html

As I've said before - it doesn't really matter if they're leased or purchased - the end result is the same - new low-fare competition. The same thing will probably happen at DCA.

 

[swamt]

The slots were leased, apparently on a permanent basis:



http://www.justice.gov/opa/pr/2010/August/10-at-974.html

As I've said before - it doesn't really matter if they're leased or purchased - the end result is the same - new low-fare competition. The same thing will probably happen at DCA.

Ok. Thx. I learned something. I guess your right, it really doesn't matter. I have heard SWA will be trying for more slots if the opertunity comes again. Thx for the correction.

 

[WorldTraveler]

If I were in charge, no airline would be permitted to create a true connecting hub at a congested, slot controlled airport like LGA or DCA. Both are the desired O&D airports for two huge, important cities and both cities feature alternative airports where hubbing makes more sense (JFK and IAD). If the airlines are having difficulty filling their flights with O&D traffic at LGA and DCA, then the logical thing would be for the number of slots to decrease, and reduce the congestion. jetBlue began when LGA was bursting at the seams and JFK was relatively empty during the middle of the day, making JFK a perfect location for a connecting hub at the time.

Two years ago, the government demanded slots at LGA and DCA to go to new entrants (who would presumably offer lower fares) and at the time, it was obvious that slots would have to be given up if AA and US eventually merged.

good post.
of course you know that your desire, as rational as it might be, is not possible because the deregulation act does not allow the US government to dictate how airlines can serve the market including where they take connecting passengers.

BTW, DCA's ontime percent is very close to the national average at US airports and only a few percent below US' system ontime percentage.

LGA and EWR have have OT percentages below the national average but they are in the same ballpark as ORD, which the gov't determined no longer needed slot controls. Apparently 66% of flights being ontime at ORD, EWR, and LGA is acceptable - or not a level which the US gov't feels should be decided by the marketplace.

DL's hub at LGA as of the most recent quarter is about 15% connecting traffic compared to35% for US at DCA and 45% for UA at EWR. ORD, not slot controlled, probably has at least as much connecting traffic for AA and UA as UA has at EWR - although I did not pull up that data.
If there is a desire to address on-time relative to the percentage of connecting traffic, then EWR would be first priority followed by ORD.

The real question in the AA/US case is whether the US government will demand that small city service be protected and/or if it is perceived to be more in the public interest to allow lower fare carriers - and other competitors to add service that will serve to provide pricing discipline for the legacy carriers.
If the decision involves protecting service to small cities, the chances are high that the low fare carriers may not end up w/ as many of the slots that AA/US have to divest - if they do - and that might be precisely part of Parker's objective if he knows he will have to divest any.

 

[im back..!!]

The real question in the AA/US case is whether the US government will demand that small city service be protected and/or if it is perceived to be more in the public interest to allow lower fare carriers - and other competitors to add service that will serve to provide pricing discipline for the legacy carriers.

-----------
As you well know, due to deregulation, there are no "lower fare" carriers.
Any carrier can and will charge whatever the market will bear. Reference the fares some outfit from Dallas insinuates they charge, and the actual fares they charge. PT Barnum would be proud.
So, that said, the service should be restricted to service to the smaller communities served by the slots now. Ant that is only because this is a slot controlled airport.

 

[usa1]

As you well know, due to deregulation, there are no "lower fare" carriers.

They all are?

1978 national average prices:

Cost of a new home: $62,500.00
Cost of a new car: $7,500
Cost of a first-class stamp:$0.13
Cost of a gallon of regular gas: $0.63
Cost of a dozen eggs: $0.82
Cost of a gallon of Milk: $1.71
Cost of a 250 mile plane ride: $100.00

2013 national average prices:

Cost of a new home: $234,000.00
Cost of a new car: $30,000
Cost of a first-class stamp:$0.46
Cost of a gallon of regular gas: $3.45
Cost of a dozen eggs: $3.39
Cost of a gallon of Milk: $3.44
Cost of a 250 mile plane ride: $100.00

 

[dash8roa]

YOU can bet your money if WN or B6 get a hold of the slots they will not fly to the small cities guaranteed
and if dl or ua say they will then they probably would find a way to say ok but then after a few months they would drop it saying its unprofitable

I remember years ago when Air Wisconsin started service as a United express carrier for ORD to HVN flights, they ran the service for a while and then obtained slots at LGA and dropped the HVN-ORD flights and used them for HVN-LGA flights which is a distance of about 70 miles. That lasted for a few months and they then in turned sold those slots for big money. Any carrier that says they will use those to maintain service to small cities is lying.
In a way I cannot blame the airlines for not wanting to waste slots on 37 to 50 seat aircraft. Remember until the US-DL LGA slot swap how many Dash-8's were flying in and out of LGA. It makes more sense to use that slot to accommodate 90 to 100 or so passengers in place of 30 or 40 passengers. LGA will never get anymore slots than they have now and they must be used for the greatest amount of passengers per flight.

 

[robbedagain]

i hear ya dash and yes you are absolutely correct there