Is USAirways hostile takeover Of AA for Real?

[FWAAA]

Fares have been relatively affordable because the carriers were in fierce competition for the markets during the deregulated enviroment. Now that consolidation has occurred and is still occuring, specifically with the major legacies, the fares will start to really rise.

It's about time that air fares rise. Compared to 30 years ago, fares are a tremendous bargain.

Once the public clamor starts, with less competition to choose from, and each carrier offering basically the same service there will be a demand to reregulate the fare structure as it was back before 1978.

Not a chance, in my opinion. Airplanes will be fueled with hydrogen before the politicians approve a plan to re-regulate air fares.

Fares have risen only a tiny amount in the past 30 years. For example, in 1981, AA's yield was 12.13 cents per mile. In 2011, AA's consolidated yield (including high-yield Eagle) was 15.15 cents per mile. In 30 years, AA's yield has increased by a paltry 25%. According to the Labor Dep't inflation stats, AA's yield should have increased during those 30 years by almost 150% to 30 cents per mile to keep pace with inflation. But instead, fares are roughly half of where they should be.

In relative terms, flying is incredibly cheap now compared to 30 years ago, when flying was still very expensive.

You've been banging the "fares will again be regulated by the government" drum for some time now, and it's simply not going to happen. The Soviet-style model of regulated prices went out of style more than 20 years ago.

 

[WorldTraveler]

but the question, PIT, is what do you believe is the impact to airline labor if re-regulation does happen... or more likely, doesn't?

and what is your motivation for hoping the industry will be re-regulated?

 

[PITbull]

but the question, PIT, is what do you believe is the impact to airline labor if re-regulation does happen... or more likely, doesn't?

and what is your motivation for hoping the industry will be re-regulated?

WorldTraveler, on 07 August 2012 - 02:29 PM, said:

but the question, PIT, is what do you believe is the impact to airline labor if re-regulation does happen... or more likely, doesn't?

and what is your motivation for hoping the industry will be re-regulated?

I don't believe Labor would benefit either in a regulated or deregulated environment.

The Labor contracts (if you want to call them contracts) have been decimated during this deregulated environment for decades. The entire point of deregulation is to allow competition, supply and demand, to dictate the fare structure in the industry.The public was to benefit from this, and they did, and have, for decades. But that benefit will come to an end as the industry finishes the consolidation.

Heck, that's how People's express came into being...deregulation. A jump start airline based in EWR competing fiercely on the East coast offering $19 fares one way. While they didn't stay in business long, and couldn't sustain those fares, there were many new regional carriers that opened up shop to compete with the legacies. The legacies that service these areas had to lower their fares, create new service ideas to compete with these carriers. LUV started service in 1978 competing with the legacies offering low fares and point to point service, going to cities that the legacies didn't service. They were smart.

The legacies competed with these new carriers by lowering their fares and creating the frequent flying program, looking for consumer loyalty...code sharing was created for better service and alliances to be more competitive and keep customers loyal. The consolidation occured as a strategy to gobble up your competition to get rid of the competition. Labor contracts were restructured outside bankruptcy and inside bankruptcy giving the same mantra to their labor groups that costs had to come down in order to compete. All the legacies have gotten their "free passes" in BK to lower their costs in order to compete. I actually made this prediction, in writing, on this very board and to U managment in e-mails back in 2002 when we were the FIRST to go into bankruptcy to demolish the labor contracts. I told them back then that every single legacy will go into bankruptcy to get their "free pass", and that I as a labor leader will not assist them in their endeavor to kill labor financially, cause on the otherside of this process of bk and consolidation in order not to perish....the airlines will just have to be reregulated again and labor nor the consumer will have benefits one iota.
Labor is cheap across the entire industry now. The only strategy I can see left for the legacies is to marry each other and become bigger and bigger to monopolize these areas where competition is fierce until these smaller carriers cease to exist, or eventually get gobbled up too.

Eventually, consolidation will be leaving only a few carriers left...taking out capacity and raising fares because of LESS competition.
That's how economics works. I am surprised you can't actually see this very clearly as the future when consolidation has been completed. Airline travel industry is different than many other industries. The government steps in as the only entitity that does this oversight with checks and balances to right the industry. Without competition, the airlines can charge whatever they want...and more cost for services that use to be part of the fare. If you want to fly to get to a destination in the future, you will have to pay a hefty price for the luxury.

Don't get me wrong, or think I am a hard core lefty. Capitalism is great because it creates entrepreneurship. And this is always good for the economies and the consumer. Greed is good to a certain point. Unchecked, it can run-amuck and hurt the consumer in all ways. Just like the banking industry. No one was enforcing the regs in place and no one was watching. Although this is a different discussion, greed created the banking crisis and housing collapse. Again, government had to step in create new regulation and enforce those regs that were not being observed....greed running-amuck and unchecked.

I see this in the airline industry. Corporate greed has ruined the industry, ruined labor relations and the public perception... really there is no loyalty anymore. The bottom line is that the public doesn't get any better service as a result of deregulation, cheap flights for now, indeed, but lousy service for the buck. And labor hasn't benefited on any level,whatsoever. And that's because the profits are intermittent and far and inbetween, and dependent largely on cost of fuel.

Yup, reregulation is on the horizon , no doubt.

PITbull

 

[PITbull]

http://www.star-telegram.com/2012/08/04/4153055/americans-unions-on-hot-seat-on.html


Good read.

Hope AA accepts this deal so they can have a financial stake in the new AA.

 

[jimntx]

20% of the stock may get them a seat at the table, but it doesn't guarantee that anyone will listen to them. The only time 20% of the votes count for anything is in Presidential elections. 40% of the likely voters are hard-core Republicans. 40% are yellow-dog Democrats. The 20% independents will decide who the next President of the US will be. When Horton and his board cronies from other companies sit down for a BOD meeting, it will require that the 20% be voted as a bloc. That probably will not happen in this lifetime that the pilots, the flight attendants, and the mechanics all agree to the same thing at the same time.

 

[IORFA]

6% or less held by the Icelanders got AMR's attention around 2006. They made changes back then to placate the rowdy's.

 

[usa1]

Eventually, consolidation will be leaving only a few carriers left...taking out capacity and raising fares because of LESS competition.
That's how economics works. I am surprised you can't actually see this very clearly as the future when consolidation has been completed. Airline travel industry is different than many other industries. The government steps in as the only entitity that does this oversight with checks and balances to right the industry.

Government over site has been the problem with this industry. They screwed it up like everything else they've touched in America for the past 30 years. They let politics enter into what should have been, limited, natural consolidation over the years, like every other deregulated industry (telecom comes to mind). Example the failed US/UA merger in 2000. James Oberstar (D-Minn.) blocked it, and when he succeeded it sent US back into BK court and United was right behind her, where the United employees lost their wages and retirement benefits. He tried it again with the UA/CO merger. But he didn't say a word about the DL/NW merger? Now the entire industries retirement healthcare and pensions are in the hands of the PBGC. Which by the way is under funded and in bad need of a tax payer bailout? What good were cheap tickets for a few years if it wrecked the industry and they, the tax payers end up paying for a PBGC bailout in the end?

http://atwonline.com...l-merger-wrong-

http://lobby.la.psu....ways_Merger.htm

AA's Crandell sat in front of a congressional hearing once, "about what's was wrong with the industry", and he told them that they had turned the airlines into nothing more than a tax collecting arm of the government, only the IRS was winning and that the best thing they could do to achieve a healthy industry was to leave them the heII alone.

This entire mess rest squarely in the laps of fail Government leaders ...... You can add more misery and money out the door by including a the Government run ATC mess .... which seems to NEVER get fixed .... the list goes on and on.

 

[WorldTraveler]

PIT,
no arguments on the economic facts of your debate... conclusions are the issue, though.

First, airline service pre-deregulation was very costly and limited. Deregulation HAS succeeded at making air travel much more affordable, even considering more recent fare levels. Remember that prices for other transportation services have increased as well. Wanna compare the price of a subway ticket in NYC 35 years ago vs. now? or a cab ride from Lower Manhattan to LGA?

Second, quality IS better now than it probably has been in about 20 years in the US airline industry. No one doubts that the cutthroat competition the US faced hurt quality. There is nowhere near a desire to return to the days where capacity far exceeds demand, forcing prices down and quality up.
Consolidaiton - with the realization that fare would go up - was part of the expected result of deregulation.
Remember, relative to 1979, fares are still much lower. Compared to the lowest point since 1979, fares are indeed higher - but quality was lower and airlines were highly unstable.
Other than AA's future right now as well as Frontier, the US industry is pretty stable.
More capacity could come out via consolidation and likely will, but the industry will not fail if it doesn't come out in the next few years.

What happened in the financial services industry is completely different from what happened to airlines. The airlines have always been highly regulated and highly taxed. A few more customer-focused rules have been added - largely in response to what other countries like the EU have done - but US airlines have plenty of regulations and there aren't any realistic changes that are significantly going to change teh business model. There HAVE BEEN major changes to laws governing financial institutions that significantly change the way they operate.

Airlines have long wanted to get government out of the way in terms of regulation - but the US has still done a better job than in most developed countries. Air travel is taxed like a sin - and a luxury at the same time. Again, not to excuse the US gov't. but other countries regulate air travel more and/or charge higher taxes. Most countries have seen what happened in the US w/ unbridled competition and they don't want it to happen in their country.

BTW, Oberstar did object to DL/NW w/o success - and AA and DL will both likely retain responsibility for the majority of their DB plans; UA will retain responsibility for the PMCO DB plans.

 

[eolesen]

6% or less held by the Icelanders got AMR's attention around 2006. They made changes back then to placate the rowdy's.

Hmmm, there may have been some changes already in work, but what did AMR do in response to those guys?

Sell AAdvantage? Spin off Eagle? Sorry, but both are very much still within the AMR fold.

 

[IORFA]

No, but they complained, AMR listened, and voila, the stock price increased enough that they got out. All I said is that it got AMR's attention and the stupid news media responded as well.

 

[FWAAA]

AA announced the intention to divest Eagle, causing a small bump in the stock price, at which point the idiots from Iceland sold most of their stake, taking a huge loss. The small bump in stock price caused by the plan to divest Eagle still left the stock down over 40% from the January 2007 high (the idiots from Iceland bought AMR as it increased in late 2006).

http://online.wsj.com/article/SB119642426928909441.html

Search for AMR and Iceland in Google and you can read this WSJ article for free.

 

[IORFA]

Point was they listened. I never said they did what they asked for.

 

[PITbull]

PIT,
no arguments on the economic facts of your debate... conclusions are the issue, though.

happened in the US w/ unbridled competition and they don't want it to happen in their country.

BTW, Oberstar did object to DL/NW w/o success - and AA and DL will both likely retain responsibility for the majority of their DB plans; UA will retain responsibility for the PMCO DB plans.

If AA retains the responsibility of the majority of the DB plans, and there is a merger with U, there is just no way possible that the US Airways labor will stand for it. There will most definitely be major animosity towards those employees and Doug Parker. The hostility and mistrust wil widen. Unless Dougie offers and provides more for US Airways 401K plans in the form of a higher percentage of matching, the defined pension issue for AA just won't fly with the U employees. That issue alone is such a hot and sore spot for all the labor groups who had their pensions terminated in BK. We ratified agreements to freeze them, but US Airways 5 days after ratifiation asked the judge to TERMINATE. This is when the realization occured that a deal ,signed ,sealed and delivered is not really a deal as US airways will tell you that this was not the intent of the language, or that this is not a proper interpretation and go grieve it. Then they just do what they want, and steal extra cost savings from the group. They just do whatever they want. Mistrust still exists today with Doug Parker and gang, same history, just a different day.

BTW, US Airways f/as just ratified their T/A today. They did maintain their scope language which is their job protections. So if there is a merger and if there are any overlapping that could create job losses, you have to hope that AA employees protect their scope, or they will be effected.

 

[PITbull]

US Airways F/A just ratified a T/A today, and got to keep their scope language.

 

[Phoenix]

If AA employees get to retain their DB plans, there will be major anger and hostility with the US Airways labor groups who had their DB plans terminated in the last BK,specfically if a merger would happen to go through. The U groups had ratified an agreement in 2005 to freeze the pensions, but 5 days after labor ratification, US Airways managment motioned to have the DB plans terminated and it was granted. That was the beginning of the end of an regard for trusting what is negotiated and ratified being honored by the U management. They just plain lie. period. You just can't trust that a deal is really a deal with US Airways management even if both parties sign. US Airways will always say, well that wasn't the intent, or you're misenterpreting the language and you can just go and grieve it crap. When they waited 5 days after the labor groups ratified their agreements in 2005, then motioned to the court to have the DB plans termianted. All bets were off to support this management in anything, and I mean anything they said, or promised to do. There is no good-will or trust. And the mistrust exists to this very day.

If Doug parker has any assumption that he can merge AA and US Airways together with AA having their pensions in tact, well, Labor at US Airways won't let it happen.

And BTW, the F/A at U just ratified their T/A...vote was completed, and the language with scope was protected. So U just can't get rid of the f/as if there is any overlapping of any sort with a potential merger with U.

Yeah, pensions are a sore spot. Not sure why anyone would actually believe the pensions (and scope) aren't the two main targets in any bankruptcy, especially with this mgt.

Your history lesson is fair warning to the three labor groups at AA that seem to be enamored with DUI.