Is USAirways hostile takeover Of AA for Real?

[A320 Driver]

I'd bet my last dollar that if you would survey AA pilots if they wanted a merger with LCC you would get less than 25% if favor today. Guys are finally opening their eyes and seeing that LCC brings a lot of people and a weak network that really doesn't solve AA's competative problems. True, it would be a life saving merger for LCC, but a half assed solution for AA- i.e. JFK/Pacific.

Just out of curiosity, have you seen the presentation that was given by Parker on the proposed merger? I have, from the man himself. An LCC/AA combination would be a revenue producing machine. It also showed how the current AA route system cannot and never will produce the revenues that would generate competitive contracts for the long term. It is not LCC that needs saving. LCC is enjoying a steady revenue stream and producing record profits. We are hiring pilots and flight attendants. New aircraft are being delivered on a regular basis.

All that being said, I for one would appreciate VERY much if AA didn't "save" us.

Thanks!

Driver...

 

[WorldTraveler]

Just so you are clear that creating a slick powerpoint that touts the benefits of a merger and creating a solid business plan that is acceptable to the creditors and has a whole lot more detail than is in that powerpoint are two very different things.
No one doubts that a merger could create revenue synergies for both sides - that really isn't the question. The real question is how US can create a business plan that delivers everything Parker says it can do and still benefit from all of those revenue gains. And all of those revenue benefits won't come w/o cutting a whole lot of capacity between the two systems - and Parker is being careful not to tell anyone where that capacity is coming from - at the same time that he is making promises about all the job protections he will offer. This isn't the first merger in the industry; everyone knows that cuts have to come in order to see strong financials.

Just remember that US employees are paid far less than other employees in the industry including several classes at AA - as well as at other airlines. AA employees don't hold US wage rates as the standard to which they wish to attain. They compare themselves to the rest of the industry. US has succeeded based on the low pay rates of its employees. It is far from clear how US would fare based on paying the combined AA/US employee group wage rates comparable to the industry.

Finally, before you spout how strong US' revenues are and how poorly AA is doing, you might want to scroll through some industry data that shows that it is US that underperforms the big 3 on revenue production on a comparable basis.
AA just outperformed US revenue growth for another on a significant basis - off of higher average revenues.
From a revenue basis, it would be AA bailing US; know one who truly understands the industry - creditors included - doubt it.

Your faith in your employer is great. Just see it within the same eyes that the far more objective creditors will use.

 

[A320 Driver]

Just so you are clear that creating a slick powerpoint that touts the benefits of a merger and creating a solid business plan that is acceptable to the creditors and has a whole lot more detail than is in that powerpoint are two very different things.
No one doubts that a merger could create revenue synergies for both sides - that really isn't the question. The real question is how US can create a business plan that delivers everything Parker says it can do and still benefit from all of those revenue gains. And all of those revenue benefits won't come w/o cutting a whole lot of capacity between the two systems - and Parker is being careful not to tell anyone where that capacity is coming from - at the same time that he is making promises about all the job protections he will offer. This isn't the first merger in the industry; everyone knows that cuts have to come in order to see strong financials.

Just remember that US employees are paid far less than other employees in the industry including several classes at AA - as well as at other airlines. AA employees don't hold US wage rates as the standard to which they wish to attain. They compare themselves to the rest of the industry. US has succeeded based on the low pay rates of its employees. It is far from clear how US would fare based on paying the combined AA/US employee group wage rates comparable to the industry.

Finally, before you spout how strong US' revenues are and how poorly AA is doing, you might want to scroll through some industry data that shows that it is US that underperforms the big 3 on revenue production on a comparable basis.
AA just outperformed US revenue growth for another on a significant basis - off of higher average revenues.
From a revenue basis, it would be AA bailing US; know one who truly understands the industry - creditors included - doubt it.

We aren't the ones in bankruptcy court either. Good luck.

Driver...

 

[WorldTraveler]

I get that.... but your assumption that AA is the "inferior" airline because they are in BK is wrong.
When AA gets the same chance to cut costs the same way other airlines, including US, have done AA doesn't look as incapable of competing.

This whole push by US is an effort to short-circuit the restructuring process of a competitor to US' gain when everyone else in the industry has had their chance to restructure independently - and the laws favor their right to do just that.

If US demonstrates at the APPROPRIATE TIME that it can present a superior proposal to AA's standalone plan - as well as any others that might arise - US should win the right to acquire AA.

 

[A320 Driver]

I get that.... but your assumption that AA is the "inferior" airline because they are in BK is wrong.
When AA gets the same chance to cut costs the same way other airlines, including US, have done AA doesn't look as incapable of competing.

This whole push by US is an effort to short-circuit the restructuring process of a competitor to US' gain when everyone else in the industry has had their chance to restructure independently - and the laws favor their right to do just that.

If US demonstrates at the APPROPRIATE TIME that it can present a superior proposal to AA's standalone plan - as well as any others that might arise - US should win the right to acquire AA.

I agree with your post. I was responding to an earlier post that stated that we at LCC needed "saving". It's been a hard road for us but are a LONG way from needing life support. We've been counted out more times than I can count, but we have good people that work hard and we are holding our own.

I didn't mean to offend...sorry.

Driver...

 

[WorldTraveler]

you didn't offend... healthy discussion is good.

Yes, US has made enormous improvements and I agree that it doesn't need to be saved. Fact is, after another round of cuts, AA won't need to be saved either. US got two bites at the apple to turn things around as well.

On a comparable basis, AA is generating superior revenues to US and their employees make more now - and will make more even after the cuts than US employees.
Thus, making promises about how much US can do for AA on the revenue side is good and probably accurate, there is another side of the story - costs that have to come out from consolidation and rationalizing the network which have to be addressed.
Parker came right out in the DL merger attempt and said how much capacity he would pull out and that the cuts would come from DL people - and lawmakers and DL employees together put an end to Parker's dreams of acquiring DL.

Now, Parker is making promises about revenue gains w/o telling anyone where the cost cuts will come from. There will be no revenue benefits w/o cost cuts or reallocation of capacity - which means moving those assets elsewhere.

BTW, the reason why DL did so well w/ the NW merger w/ respect to finances is because it has engaged in a 3 year effort to reallocate capacity, including over the Pacific and Atlantic and pulling capacity out of CVG and MEM. DL added new capacity to Asia mostly from DTW and added new routes to Africa and Latin America. Domestic capacity was moved to NYC.
DL has been able to keep its revenue growing while pushing down costs because of its rationalization.

UA has so far not obtained much if any revenue benefit from the merger.... their RASM growth has been at the bottom of the industry since the merger. Not surprisingly, UA has not achieved any mutual labor agreements which are necessary to help rationalize capacity. UA will eventually have to remove capacity from its network in order to gain the revenue benefits they claimed would come from the merger. If they can't reallocate the capacity someplace else, those are costs that have to come completely out of their system.

AA/US will have to do the same thing; remove capacity in order to push up performance on the combined existing network while at the same time add new capacity that will use the resources that are being reallocated.

AA/US also have the very large challenge of bringing salaries up to levels comparable w/ DL and likely UA post integration.

 

[A320 Driver]

you didn't offend... healthy discussion is good.

Yes, US has made enormous improvements and I agree that it doesn't need to be saved. Fact is, after another round of cuts, AA won't need to be saved either. US got two bites at the apple to turn things around as well.

On a comparable basis, AA is generating superior revenues to US and their employees make more now - and will make more even after the cuts than US employees.
Thus, making promises about how much US can do for AA on the revenue side is good and probably accurate, there is another side of the story - costs that have to come out from consolidation and rationalizing the network which have to be addressed.
Parker came right out in the DL merger attempt and said how much capacity he would pull out and that the cuts would come from DL people - and lawmakers and DL employees together put an end to Parker's dreams of acquiring DL.

Now, Parker is making promises about revenue gains w/o telling anyone where the cost cuts will come from. There will be no revenue benefits w/o cost cuts or reallocation of capacity - which means moving those assets elsewhere.

BTW, the reason why DL did so well w/ the NW merger w/ respect to finances is because it has engaged in a 3 year effort to reallocate capacity, including over the Pacific and Atlantic and pulling capacity out of CVG and MEM. DL added new capacity to Asia mostly from DTW and added new routes to Africa and Latin America. Domestic capacity was moved to NYC.
DL has been able to keep its revenue growing while pushing down costs because of its rationalization.

UA has so far not obtained much if any revenue benefit from the merger.... their RASM growth has been at the bottom of the industry since the merger. Not surprisingly, UA has not achieved any mutual labor agreements which are necessary to help rationalize capacity. UA will eventually have to remove capacity from its network in order to gain the revenue benefits they claimed would come from the merger. If they can't reallocate the capacity someplace else, those are costs that have to come completely out of their system.

AA/US will have to do the same thing; remove capacity in order to push up performance on the combined existing network while at the same time add new capacity that will use the resources that are being reallocated.

AA/US also have the very large challenge of bringing salaries up to levels comparable w/ DL and likely UA post integration.

Without question I was one of the naysayers regarding a merger between AA and LCC. I walking into the union headquarters to listen to Parkers PowerPoint. I walked in thinking that a merger would benefit LCC and LCC alone. What I saw changed my mind. The capacity side of the equation is pretty much dealt with. It's not about pulling down capacity anymore...it's about choices. And to the medium sized cities that we feed our respective hubs with, it would be a huge increase in options for travelers. It would also tip the marketshare scales in our direction in many of those cities to keep us competitive with Delta and United. The other mergers, plus our own respective pull-downs have pretty much rightsized overcapacity. We will all benefit from that. According to the PowerPoint presentation, there is very little to be gained at this point from any further reductions in overall capacity.

I can understand anyones suspicion regarding offers and mergers. We've all seen our share of snake oil salesmen and I am one of those you have to convince. What I saw made sense. We will see where it goes. I don't wish bankruptcy and the hells that come with it on anyone. It's not a cure all either. At least the AA pilots were able to freeze the pensions instead of having them terminated. Take that as a victory because those will be a little thin for a while.

Driver

 

[WorldTraveler]

But mergers work based on increased revenues AND reduced costs.
AA/US will most certainly create increased synergies just like DL/NW has done, WN/FL is doing (they are starting to regain their revenue position after several quarters of RASM underperformance), and UA/CO will do.

But you don't simply get alot of revenue benefit by adding two route systems side by side and not pull out some duplicate capacity - and then hopefully redistribute it. DL, WN, and UA didn't tell the market where all of its capacity cuts would come from - but all have cut duplicate capacity and so far, DL has done the best job of redistributing capacity - but DL had a couple year headstart on UA and WN so that isn't entirely unexpected.

But UA hasn't come close to bringing labor together - and it will cost them big bucks to bring pay rates for all employee groups to industry average or better, which is part of why they are happy to drag the process out.

And DL has been by far the most aggressive in redeploying capacity to places where it can better use it than where it was before. And DL has also insulated alot of its own employees from bearing restructuring pain but has shifted it to its regional carriers.

What is missing from US' plan is some idea of how that duplicate capacity will come out of their system. There are indeed duplications between JFK/PHL and DFW/PHX at the minimum.
What is also missing - and US might not reveal it publicly - is where the excess capacity will be redeployed. If it isn't redeployed, then the costs have to come completely out. That is alot harder to do outside of BK, which is probably a big reason why Parker has said that his desire to do a deal diminishes greatly if he doesn't get the chance in BK. Don't think for a minute that cutting costs in BK doesn't also involve employees.

When you consider that AA/US will be merging at a time when other airlines are much further along if not nearly finished with their mergers, AA/US will face some very tough competitive pressures - which haven't at all been factored into the hype about merger benefits. DL is ready and able to implement its own strategic plans which they will undoubtedly do to protect their market position - and DL's position on the east coast will be most threatened by AA/US so you can be absolutely certain they will act.
UA is not quite as ready to act but they are not about to sit quietly on the sidelines either - and what they have built on the east coast - while not as strong as DL is also threatened by AA/US. UA has also gained alot of strength in the midwest and west because of their merger that they are not about to give up.
WN also has alot riding on its merger with FL and its need to become larger on the east coast, esp. in large business markets.

Don't underestimate for one minute the degree to which all 3 airlines - all with much stronger finances - would fight to protect their interests. We have yet to hear real signs of how AA/US can overcome the challenges of all three of those airlines.

Add in very difficult labor relations at both AA and US, and it is far from certain that AA/US will achieve all that is promised.

I'm not saying that AA/US won't ever work or that they shouldn't try - but those are all factors which don't get mentioned in the nice powerpoints that US puts together to push the merger.

 

[wings396]

Don't have a lot of time for a long post, but I feel the PHL/ JFK issue can still work as is due to the large population bases they draw from. PHL also enjoys the additional connecting traffic.
On another note, it may be wise to be secretive about where capacity may be redistributed at this time for competitive reasons.......

 

[Hopeful]

Though a merger and "increased synergy" talk might be important to some.....For the rest of us stuck with a six year deal, does anyone think we are going to fair better with US?

 

[jimntx]

"

It's not about pulling down capacity anymore...it's about choices. And to the medium sized cities that we feed our respective hubs with, it would be a huge increase in options for travelers. It would also tip the marketshare scales in our direction in many of those cities to keep us competitive with Delta and United. The other mergers, plus our own respective pull-downs have pretty much rightsized overcapacity. We will all benefit from that. According to the PowerPoint presentation, there is very little to be gained at this point from any further reductions in overall capacity.
Driver

Remember "Two Great Airlines. One Great Future" (AA/TWA)? Ask the people of St. Louis or Reno how the purchase of TWA and Reno Air benefitted them. When I was recalled from furlough in Nov., 2004, AA still had something like 200 departures a day from STL. They now have about 30--the great majority being either STL-DFW or STL-ORD.

When AA bought Reno Air, Reno had something in the neighborhood of 300 departures/day. Now, there are 3 mainline flights from DFW to RNO, 1 from ORD, and 3 Eagle flights from LAX.

I would maintain a healthy scepticism toward anyone who says capacity does not have to be reduced in a merger.

 

[N288AA]

AA has dismantled every carrier we ever bought. AirCal Reno TWA.....there is nothing left of either of these carriers. If AA is the aquiring carrier I would be extremely nervous.

 

[WorldTraveler]

and in all honestly, US has pulled down a fair amount of what it has acquired from other carriers as well as what it built on its own.

 

[john john]

Just remember that US employees are paid far less than other employees in the industry including several classes at AA - as well as at other airlines. AA employees don't hold US wage rates as the standard to which they wish to attain. They compare themselves to the rest of the industry. US has succeeded based on the low pay rates of its employees. It is far from clear how US would fare based on paying the combined AA/US employee group wage rates comparable to the industry.

You better check your information with the USAirways Passengers Service Group

And while you’re at it check your DL and their efforts to have as few fulltime jobs with benefits as possible

 

[eolesen]

When AA bought Reno Air, Reno had something in the neighborhood of 300 departures/day. Now, there are 3 mainline flights from DFW to RNO, 1 from ORD, and 3 Eagle flights from LAX.

Jim, QQ only operated about 240 flights a day in Sept 1998, the year prior to being bought by AA. They didn't grow that much when AA took ownership -- about 250 flights in summer 1999.

Despite their name, they only operated 29 departures from RNO. They also had 27 departures from SJC, 32 from LAX, and ~17 flights each at LAS and SNA.

Your point is taken that the city lost the nonstop service they had with QQ's hublet, but the airport had never seen more than about 40 or 50 flights a day at the peak of QQ's operation.