JUSTICE DEPT SUES TO BLOCK US/AA MERGER

[eolesen]

IMO if they had dropped the $20million payout to Horton the suit would not have been filed.

Yes, that's it!... The payout was ***so*** important to them, there's no mention of it in the lawsuit...

Maybe that's because the Antitrust Division (the guys with the authority here) isn't associated with the US Trustee (the ones who filed the obection to the severance). They all work for Eric Holder, but that's about the extent of the connection.

With or without the US Trustee's objections, the anti-trust suit would have been filed. You don't get to have 20% of the domestic market without the AT guys noticing.

 

[Bob Owens]

Yes, that's it!... The payout was ***so*** important to them, there's no mention of it in the lawsuit...

Maybe that's because the Antitrust Division (the guys with the authority here) isn't associated with the US Trustee (the ones who filed the obection to the severance). They all work for Eric Holder, but that's about the extent of the connection.

With or without the US Trustee's objections, the anti-trust suit would have been filed. You don't get to have 20% of the domestic market without the AT guys noticing.

Has the market share of either carrier changed substantially since they announced the merger? No, but twice much more recently they objected to the $20 million for Horton, the last objection came two weeks ago with management pretty much ignoring those objections and making it pretty clear they intended to grant Horton his $20 million.

Al Capone was responsible for many Murders but it was the IRS that basically put him in prison. Citing the $20 million payoff to Horton probably would not stand up in court as a reason to squash the merger thats why they didnt cite it, but the arguements that would stand up are the ones they are using, yes they could have used them before against UA and DL but they did not. Whats your explanation? Sure another factor could be that the Obama administration is more serious about protecting the Consumers than the Bush Administration but I stand by what I said, if they had pulled the $20 million they would not be facing the lawsuit. The Govt would have raised objections, pushed for some divestment to try and give some smaller carriers access to prime markets etc but not just block it outright.

 

[eolesen]

Bob, you'll notice that nobody from DOJ even hinted that they were in favor of this, and folks in DC have alluded to the fact that DOJ had been negotiating with AA and US prior to the filing. It was really a matter of last resort.

But to your new point -- did the market shares change substantially? No.

Before the merger announcement, DL had 16%, UA and WN had 15%, and AA was around 13%. Notice how close together those are. If they were a grouping on a pistol target at 50 yards, I'd be fairly satisfied with that.

What AA proposed was going to 21%. That's no longer in the grouping, it's way outside. And that's why DOJ is raising the alarm. If AA were proposing to increase its share to something on the order of DL, it would likely have passed muster with surrendering a few slots at DCA.

Again, this lawsuit is about cornering 21% of the market, and having two somewhat complicit competitors controlling the other 30% or so winds up in an oligopoly situation.

What makes it more of an issue to address is the fact that when you factor out the urban markets (i.e. flying up/down and between the two coasts), you wind up in a situation where there are only four airlines which are serving the majority of the flyover states. There are only a few markets where AS or B6 bother with outside the coastal cities. Places like LIT, ABQ, AUS, STL, and MEM might benefit from having WN in the market, but they're not the low fare airline they used to be, and those markets don't get the benefit of someone like Spirit or even Frontier anymore coming in to disrupt things. US has been the disruptor. Taking them out of the mix can't be understated.

I know you don't buy into the Loaf of Bread theory, and also probably don't care if the folks in the flyover states get screwed, but that's what the DOJ is trying to prevent here.

Now, I'm sure WT will be along any moment to start talking about the international market, but that's not what the DOJ's interests are. Their argument is squarely focused on the domestic market.

 

[MAH4546]

I'm just so impressed by Delta's marketshare in the nation's largest domestic O&D market. WT, remind us again how amazing Delta does in Miami-New York. It's been at least a day since we've heard about it.

And as for LAX, Delta would absolutely kill to be in AA's position in LAX and the general Los Angeles market. But it's not, and it won't be anytime soon. AA will be further pushing LA expansion next year, including likely finally entering the key LAX-SEA/PDX markets, and a new new trans-pac route (in addition to possibly flying LAXAKL under the QF JBA), as it does intend to become the airport's largest airline, merger with US or not.

 

[Bob Owens]

Bob, you'll notice that nobody from DOJ even hinted that they were in favor of this, and folks in DC have alluded to the fact that DOJ had been negotiating with AA and US prior to the filing. It was really a matter of last resort.

But to your new point -- did the market shares change substantially? No.

Before the merger announcement, DL had 16%, UA and WN had 15%, and AA was around 13%. Notice how close together those are. If they were a grouping on a pistol target at 50 yards, I'd be fairly satisfied with that.

What AA proposed was going to 21%. That's no longer in the grouping, it's way outside. And that's why DOJ is raising the alarm. If AA were proposing to increase its share to something on the order of DL, it would likely have passed muster with surrendering a few slots at DCA.

Again, this lawsuit is about cornering 21% of the market, and having two somewhat complicit competitors controlling the other 30% or so winds up in an oligopoly situation.

What makes it more of an issue to address is the fact that when you factor out the urban markets (i.e. flying up/down and between the two coasts), you wind up in a situation where there are only four airlines which are serving the majority of the flyover states. There are only a few markets where AS or B6 bother with outside the coastal cities. Places like LIT, ABQ, AUS, STL, and MEM might benefit from having WN in the market, but they're not the low fare airline they used to be, and those markets don't get the benefit of someone like Spirit or even Frontier anymore coming in to disrupt things. US has been the disruptor. Taking them out of the mix can't be understated.

I know you don't buy into the Loaf of Bread theory, and also probably don't care if the folks in the flyover states get screwed, but that's what the DOJ is trying to prevent here.

Now, I'm sure WT will be along any moment to start talking about the international market, but that's not what the DOJ's interests are. Their argument is squarely focused on the domestic market.

Then why wait till the last minute to file? Nobody from the DOJ said they were in favor of the TWA deal, or the DL-NWA deal or the UA -CO deal or the WN-FL deal. Like I said AA approached the govt the same way they approach their employees, that they are going to do whatever they feel like doing and the $20 million payout was the straw that broke the camels back. How much of the domestic interstate passenger rail does AMTRAK have? Why didn't the govt stop that? For the same reason they didn't stop AA from buying TWA, UA and CO merging and Delta and NWA from merging, because the industry could not remain profitable with too many contenders and having a transportation industry thats failing is not in the public interest. The 5% advantage (?) that the new AA would have may have been a factor as it probably was when Delta bought NWA and surpassed AA by 4%, which has been addressed in the past without a flat out lawsuit but from what I've read the DOJ isn't looking at that option, they are looking to stop the merger completely even though the most likely result is one of the carriers will eventually end up disappearing anyway. When DL jumped 4% above AA that was nearly as much of a spread as what you are saying AA would now have over them.

AA screwed up, going into BK with $5billion and 500 new airplanes on the way at a time when the rest of the industry is seeing revenues and profits soar is not the best time to announce a merger on top of all that, they should have went BK back in 2003 -05 like everyone else, but I believe its the arrogance that they displayed in regards to Hortons payout that brought the govt over the top. Had AA dropped the payout, displayed a little deference to the govt, instead of making the government look weak and incompetant by saying that they were going to give Horton the money anyway, they could have worked out a deal to satisfy any concerns as far as too much consolidation, just like with other mergers. None of the issues you brought up are recent developments, the Govt voiced their second complaint against Hortons payout two weeks ago and AAs response was that they were not going to even consider the governments objections.

 

[1AA]

ARROGANCE!

 

[FWAAA]

Part I as the software limits the size of multi-quote posts:

Horton took us into BK as Arpey retired, he bragged about taking Labor through the wash. Horton screwed us, he has to go, without the $20 million.

The board finally told Arpey to file for Ch 11; because Arpey was morally opposed to Ch 11, he decided to step down rather than be a part of it, so Horton was promoted. "He has to go" sounds rather emotional.

You claim that all the other carriers went through this, show me any carrier where for the first five years you only get one week of vacation, show me any carrier where they only recognize five holidays and only pay four hours extra for working eight hours on the Holiday, show me any other carrier where you only get 5 sick days, show me any other carrier where no matter how many hours you are on the clock you never get more than 1.5X pay, show me any other carrier where they earn less and pay more for Medical coverage. The fact is that AA is THE WORST carrier to work for, worst in benefits, worst in work rules, worst in Holiday pay, worst in Vacation, worst in sick time, worst in benefits and worst in pay.

For Christ's sake, Jacob's point was that every other legacy network airline's employees went thru the same thing - not that every legacy airline employee is as poorly paid as AA's mechanics. We get it. Your workgroup has the lowest pay and benefits in the industry. You get what you negotiate, and your workgroup's record on that is, well, abysmal. And thus it's the CEO's fault.

Thats why workers at AA are bitter and Horton was at the helm when this was put in place and thats why he must go or AA will continue to fall behind their peers. The lack of response to the petition is indicative of how the employees feel about everything, not so much about the Merger, THEY DO NOT CARE. Sure they show up and put forth minimal effort till they find something else or retire but that is not a formula to become a leader, and nobody, except you, is enthused about Tom Horton or his plans. If AA is to succeed Horton must go. The only thing good about the merger was that Horton would be gone, and that was the main point stressed by the Unions in favor of the merger, but management was so arrogant in violating the intent of the law with the $20 million buyout that they brought the wrath of the DOJ on them.

Horton's $20 million payout was the idea of the UCC, according to the UCC's lawyer, Jack Butler:

http://aviationblog....2-lawyers.html/

Jack Butler says that it was the creditors' idea, not Horton's. Not management's as you claim.

They deserve this action, everyone knows what the intent of the law was, for them to say that they were going to find a way to pay it anyway was a slap in the face to every person in this country who supported that legislation. Sure other carriers got their competition crushing mergers approved, but they didnt flagrantly brag about how they were going to find a way to do what the people of this country decided was unacceptable. Maybe if AA/US had backed off on giving Horton the $20 million they would have let them slide through like UA and DL, but they obviously feel that they can f&^K with the government like they can with us.

Who is "they" that you mention say several times in this paragraph? The creditors - the UCC - is pushing for Horton's $20 million that you find so objectionable.

Bankruptcy is FAILURE, the fact that in reality it has become a scam to rip off workers is not to be acknowledged publicly, thats why the government put in the law limiting payouts to executives, to keep the scam in place, but AA management decided to put the whole scam at risk by insisting that they would still reward executives for what is supposed to be failure. To say that they were blindsided by this is Bull. Twice the DOJ objected to the payout to Horton. That Leprechaun masquerading as a Judge failed to follow the cue and was set to allow the payment to Horton, so the DOJ decided to not look the other way on the anti-competitive effects as they have in prior mergers of this merger and act.

So the UCC decides to pay Horton $20 million as part of the merger and you blame AA management. Why not stick to the facts?

IMO if they had dropped the $20million payout to Horton the suit would not have been filed.

I don't think the $20 million played any part in the suit filed this week, but if it did - then I say "good," because like you - I'm not in favor of the merger. Several times this past week you've posted that AA doesn't need the merger and that AA will do fine without it. I agree with you on that.

Has the market share of either carrier changed substantially since they announced the merger? No, but twice much more recently they objected to the $20 million for Horton, the last objection came two weeks ago with management pretty much ignoring those objections and making it pretty clear they intended to grant Horton his $20 million.

Again, Emily Litella, the $20 million is the UCC's idea, and the UCC is fighting to pay it to Horton, not AA management.

What relevance is it that the market share of AA and US hasn't changed since the merger was announced? The objection of the government is that when you combine their market share, they become the largest airline in a market where the top four (AA, UA, DL and WN) will control 90% of the domestic market. The market was not that concentrated following any of the previous mergers.

 

[FWAAA]

Part II as this stupid software said my last post was too long:

Al Capone was responsible for many Murders but it was the IRS that basically put him in prison. Citing the $20 million payoff to Horton probably would not stand up in court as a reason to squash the merger thats why they didnt cite it, but the arguements that would stand up are the ones they are using, yes they could have used them before against UA and DL but they did not. Whats your explanation?

You're essentially saying that the DOJ is blocking a merger that otherwise does not violate the Clayton Act because the government is blinded by emotion surrounding the UCC's desire to pay Horton $20 million to go away? I could see the APFA leadership acting that way, but not the Department of Justice and several state Attorneys General.

Sure another factor could be that the Obama administration is more serious about protecting the Consumers than the Bush Administration . . .

Ya think? My whole life I've heard that Republicans think even less of antitrust enforcement than the Japanese and that the Democrats believe that big mergers must be blocked. Now, the DOJ under a Democratic administration blocks a merger and you think it's because the creditors committee wants to pay severance to the outgoing CEO? Wow.

but I stand by what I said, if they had pulled the $20 million they would not be facing the lawsuit. The Govt would have raised objections, pushed for some divestment to try and give some smaller carriers access to prime markets etc but not just block it outright.

Well, neither of us have any evidence on that belief, but I disagree. I doubt that Baer cares about Horton's $20 million. Yes, the US Trustee in the AA bankruptcy is objecting to it, as she believes that it violates the 2005 changes to the Bankruptcy Code. It probably does. The UCC shouldn't try to violate the law, but that's what they're trying to do.

Anyway, if the $20 million did cause the DOJ to file the suit, then I'm happy. AA doesn't need to tie itself to a boat anchor like US; AA is able to survive fine without Parker's dysfunctional airline.

Then why wait till the last minute to file? Nobody from the DOJ said they were in favor of the TWA deal, or the DL-NWA deal or the UA -CO deal or the WN-FL deal.

Have you read the DOJ complaint or the press conference that Baer gave? It's clear that Baer thinks the prior mergers should not have been approved, but the mistakes of the past do not prevent the government from challenging this merger. I expect Parker to argue that "You didn't object to those prior mergers so you have to let us merge" but that ain't the law, and Parker will lose if that's his argument.

Like I said AA approached the govt the same way they approach their employees, that they are going to do whatever they feel like doing and the $20 million payout was the straw that broke the camels back. How much of the domestic interstate passenger rail does AMTRAK have? Why didn't the govt stop that? For the same reason they didn't stop AA from buying TWA, UA and CO merging and Delta and NWA from merging, because the industry could not remain profitable with too many contenders and having a transportation industry thats failing is not in the public interest. The 5% advantage (?) that the new AA would have may have been a factor as it probably was when Delta bought NWA and surpassed AA by 4%, which has been addressed in the past without a flat out lawsuit but from what I've read the DOJ isn't looking at that option, they are looking to stop the merger completely even though the most likely result is one of the carriers will eventually end up disappearing anyway. When DL jumped 4% above AA that was nearly as much of a spread as what you are saying AA would now have over them.

AA management didn't want this merger. Parker and the AA unions and the AA creditors want the merger, so I'm confused - you blame AA and AA management for not treating the DOJ properly, when your ire should be directed at Parker and the UCC.

AA screwed up, going into BK with $5billion and 500 new airplanes on the way at a time when the rest of the industry is seeing revenues and profits soar is not the best time to announce a merger on top of all that, they should have went BK back in 2003 -05 like everyone else, but I believe its the arrogance that they displayed in regards to Hortons payout that brought the govt over the top.

So the UCC and the AA unions and the AA creditors (the ones pushing for the merger and the Horton payout are arrogant? I agree with you. How did AA screw up? The cash on hand meant that there was zero risk of running out of cash and facing liquidation. AA didn't have to beg any DIP lenders for cash to continue operating.

How are the orders for new planes a screw-up? AA has lease financing in place for many of them and the creditors didn't object to the orders. Neither did the judge. Neither did the US Trustee. The only people harping on the cash and new plane orders are the disgruntled, low-paid employees. Everyone else at the party thinks that AA did a fine job.

Had AA dropped the payout, displayed a little deference to the govt, instead of making the government look weak and incompetant by saying that they were going to give Horton the money anyway, they could have worked out a deal to satisfy any concerns as far as too much consolidation, just like with other mergers. None of the issues you brought up are recent developments, the Govt voiced their second complaint against Hortons payout two weeks ago and AAs response was that they were not going to even consider the governments objections.

Again, the payout was the idea of the UCC, not Horton. Not AA and not "management."

In sum, you're alleging that the government is attempting to block a merger over a mere $20 million severance payment. A payout that is the idea of the people who are pushing for the merger, the creditors.

Throughout the posts I quoted, you incorrectly used the words "AA," "management" and "Horton" when the facts point to Parker, the UCC and the AA unions. You know, the people pushing for the merger. Horton doesn't want the merger - I suspect that he's happier this week than he's been in a long time.

 

[Barfbag]

Part II as this stupid software said my last post was too long:


You're essentially saying that the DOJ is blocking a merger that otherwise does not violate the Clayton Act because the government is blinded by emotion surrounding the UCC's desire to pay Horton $20 million to go away? I could see the APFA leadership acting that way, but not the Department of Justice and several state Attorneys General.



Ya think? My whole life I've heard that Republicans think even less of antitrust enforcement than the Japanese and that the Democrats believe that big mergers must be blocked. Now, the DOJ under a Democratic administration blocks a merger and you think it's because the creditors committee wants to pay severance to the outgoing CEO? Wow.


Well, neither of us have any evidence on that belief, but I disagree. I doubt that Baer cares about Horton's $20 million. Yes, the US Trustee in the AA bankruptcy is objecting to it, as she believes that it violates the 2005 changes to the Bankruptcy Code. It probably does. The UCC shouldn't try to violate the law, but that's what they're trying to do.

Anyway, if the $20 million did cause the DOJ to file the suit, then I'm happy. AA doesn't need to tie itself to a boat anchor like US; AA is able to survive fine without Parker's dysfunctional airline.

Correct; Horton is a AA blue blood & very happy to be the a real boss again.

Now he'll have to roll up his sleeves and start busting heads at Centerport, bring in the loggerhead unions and get back into the game.


Have you read the DOJ complaint or the press conference that Baer gave? It's clear that Baer thinks the prior mergers should not have been approved, but the mistakes of the past do not prevent the government from challenging this merger. I expect Parker to argue that "You didn't object to those prior mergers so you have to let us merge" but that ain't the law, and Parker will lose if that's his argument.


AA management didn't want this merger. Parker and the AA unions and the AA creditors want the merger, so I'm confused - you blame AA and AA management for not treating the DOJ properly, when your ire should be directed at Parker and the UCC.


So the UCC and the AA unions and the AA creditors (the ones pushing for the merger and the Horton payout are arrogant? I agree with you. How did AA screw up? The cash on hand meant that there was zero risk of running out of cash and facing liquidation. AA didn't have to beg any DIP lenders for cash to continue operating.

How are the orders for new planes a screw-up? AA has lease financing in place for many of them and the creditors didn't object to the orders. Neither did the judge. Neither did the US Trustee. The only people harping on the cash and new plane orders are the disgruntled, low-paid employees. Everyone else at the party thinks that AA did a fine job.


Again, the payout was the idea of the UCC, not Horton. Not AA and not "management."

In sum, you're alleging that the government is attempting to block a merger over a mere $20 million severance payment. A payout that is the idea of the people who are pushing for the merger, the creditors.

Throughout the posts I quoted, you incorrectly used the words "AA," "management" and "Horton" when the facts point to Parker, the UCC and the AA unions. You know, the people pushing for the merger. Horton doesn't want the merger - I suspect that he's happier this week than he's been in a long time.

 

[WorldTraveler]

E,
Your point about the size of the combined AA-US’ network helps to counter the notion that so many seem to have that the DOJ is picking on AA/US…. Esp. since AA/US’ strength on the east coast is a lot more concentrated on the east coast than DL/NW, UA/CO, or WN/FL.

Yes, you can toss out int’l market share because there are foreign carriers that provide checks and balances in the int’l market but they can’t do the same on the domestic market. That is why the EU found a single route divestiture sufficient while the DOJ wants the whole merger stopped.

The simple reason to discuss the international markets is because how AA performs in them is key to its future, whether the DOJ included them as reasons for concern with the merger. The fact that US is fairly small in int'l markets fully explains why AA/US would have little significant int'l impact.
Further, AA's position in key markets like NYC, LAX, and ORD are driven by AA's int'l presence in those markets. AA, like most carriers, has to operate a number of domestic routes to feed its int'l routes, even in cities like LAX. The DOJ would likely be less focused on AA's size at LAX or NYC overall as part of a merger if AA only operated flights that made money.


MAH,
No, I will not tell you again how well DL has done in LGA and JFK to MIA but instead I will ask you why DL has been able to grow so quickly in such a large market for AA.

I’ll also offer a couple reasons…. First, it is very hard to maintain a monopoly in an industry with multiple players or IOW with 2 or more competitors, the share will be divided. AA had a monopoly in many MIA markets including NYC. DL is strong enough in both NYC and in MIA that it was able to quickly build its share. Same is true for LGA-DFW and LGA-ORD.

Yet, more than two players in a market make it very difficult for anyone to succeed. DEN is a classic example of this.

Yet just because there are only two players in a market doesn’t mean that both will have equal shares or both will succeed. It is precisely because of UA’s strength in Asia that they outperform AA from ORD-Asia. OTOH, AA’s aggressive growth pushed UA out of the MIA-Latin America market.

LAX-Asia has such different results for each of the big 3 precisely because DL and UA have strengths in Asia that AA doesn’t and, as much as you want to believe otherwise, all 3 perform relatively similarly in LAX overall with the number of markets each operates the only key difference.

Your expectation that AA will grow significantly and move way ahead of the rest of the pack is misplaced since no airline at LAX has much room to expand, including AA. AA and DL might be in a shootout to use the space they do have as efficiently as possible but there is not a whole lot of room left.

You also somehow fail to recognize that there are significant differences in what each of the big 3 are doing with int’l in LAX. AA continues to hold onto LAX-NRT even though they are losing enormous amounts of money on the route; thinking they could become profitable by adding more Asian destinations, they are duplicating the same losses on LAX-PVG, which UA quickly jumped into.

DL has focused on LAX-Japan, where NW did a very good job of defending its market position over a period of decades and DL has grown it since with the addition of HND service. The fact that UA is reducing its LAX and SEA-Japan capacity shows that DL’s focus on Japan from all of the major west coast gateways with their larger Asian focus at SEA is working and DOT data clearly shows that DL is generating far higher revenues from LAX to Japan that AA and UA are to either NRT or PVG.

Do you realize that gov’t contracts for the next gov’t year have been awarded and AA won the bid for LAX-NRT with a bid of $432 for the HIGH fare and $319 for the low fare. AA’s winning bid for LAX-PVG is $591 and $579. AA’s LAX-NRT bid is one of the lowest TPAC bids while NYC-LON by AA at $272 is one of the lowest int’l bids.

Suppose the GSA told the DOJ has much it would cost the Feds if AA and US merged and AA raised its gov’t bids?

AA continues to try to compete in markets because they believe they are strategically important even if they cannot make money. AA mgmt believes they need to operate a 12 hr flight and offer the US gov’t a $400-600 fares and continue to add flights, then I certainly won’t stop them.

And if you think that having a presence in markets where AA loses tens of millions of dollars per year is the measure of success, then you and I clearly have different understandings of the purpose of the US airline industry.

 

[Jacobin777]

If AA is to succeed Horton must go. The only thing good about the merger was that Horton would be gone, and that was the main point stressed by the Unions in favor of the merger,

Last I recall, AA had record earnings. I guess that is the antithesis of success. 😛

but management was so arrogant in violating the intent of the law with the $20 million buyout that they brought the wrath of the DOJ on them.

Do you really know what you're talking about?

Maybe if AA/US had backed off on giving Horton the $20 million they would have let them slide through like UA and DL, but they obviously feel that they can f&^K with the government like they can with us.

Like I said, do you have any idea you know what you're talking about?

Bankruptcy is FAILURE

Then every legacy is a failure and some multiple times over.

the fact that in reality it has become a scam to rip off workers is not to be acknowledged publicly, thats why the government put in the law limiting payouts to executives, to keep the scam in place, but AA management decided to put the whole scam at risk by insisting that they would still reward executives for what is supposed to be failure.

So I guess a multi-billion dollar publicaly traded company thought they would be able to "get away with it"?

To say that they were blindsided by this is Bull. Twice the DOJ objected to the payout to Horton. That Leprechaun masquerading as a Judge failed to follow the cue and was set to allow the payment to Horton, so the DOJ decided to not look the other way on the anti-competitive effects as they have in prior mergers of this merger and act. IMO if they had dropped the $20million payout to Horton the suit would not have been filed.

As I and others have stated, the DOJ did NOT file a suit to prevent Horton the $20 million. Its quite obvious you have NO idea what the facts are.

Fellow member FWAAA has been very clear on the facts, especially relating to your comments.

 

[Jacobin777]

Horton took us into BK as Arpey retired, he bragged about taking Labor through the wash.

Where? Care to point that out?

Horton screwed us

How?

and nobody, except you, is enthused about Tom Horton or his plans.

Really? Last I recalled until Parker offered his unsustainable lollipops, for the past 12-14 months, the plan was ok for AA to come out independently.

 

[Jacobin777]

Jacobin,It is good to talk with you again….
The Cornerstone strategy is a REVENUE strategy and AA defined what cities matter.

I'm glad we've got to chat again WT. 🙂

On to the subject at hand:

Not entirely true WT.

"On Sept. 17, 2009, AMR announced plans to strengthen its network by reallocating capacity to hubs in Dallas/Fort Worth, Chicago, Miami and New York and enhance its fleet to better serve customers."

http://www.aa.com/i18n/amrcorp/corporateInformation/facts/amr.jsp

The cornerstone strategy is a network strategy which should lead to better revenue. The two are related but not the same.

But AA’s position in ORD has slipped over the past several years, esp. in the int’l markets. Quite simply in NYC, AA gave up huge amounts of share to DL in global markets including top business markets and to B6 in leisure oriented markets.

As I've previously mentioned, UA has pulled back quite bit at ORD as well. UA has barely grown internationally out of ORD the past 10 years. Practically no international growth. In fact, the past during the past 10 years, UA has decreased internationally (pax count) by almost 10%! Yes, AA has decreased as well but again, AA can now expand more given the proper fleet + cost structure.

NYC is slot limited which seems AA’s size relative to DL and UA and every other player is basically locked absent a merger.

I've always stated New York will be tough but again, AA has more than enough slots/slack + new cost structure to expand out of both JFK as well as LGA. Again, we'll have to see how their "cornerstone strategy" pans out the next 3-5 years to really have an accurate guage.

Again, the goal isn't to be "the biggest or make the most money". The goal is to be profitable with good revenue margins. AA has more than enough mass, slots, etc. to do that in New York.

Given the concerns about market concentration, the chances of a merger that significantly change market share in key markets, esp. those with limited entry potential, are very slim. AA is probably at the size it will be in NYC. Thus, it has to use what it has in order to maximize its revenue. Remember that AA has had a strategy at LGA to add flights into other carrier hubs.

-As I mentioned above, AA has more then enough slack to expand at both airports.
-DL added many LGA-ORD and LGA-MIA flights. What you think, those aren't into hubs?

 

[Jacobin777]

I’m not sure where you think AA has growth potential at LAX that DL doesn’t unless AA is underutilizing its gates which I have never seen to be true.

Mark (Mah4546) has mentioned about AA expanding @LAX a bit. AA certainly does have room. It has much more room than DL. DL is also playing "catch up". While DL was able to take advantage in New York thanks to AA's "follies" for the past number of years, I don't expect that to be the case @LAX.

AA’s revenue at LAX will go down with its 321 strategy unless it adds more revenue elsewhere… they would have to add back as much revenue generating capacity as they are cutting to keep revenues constant.

You're simply hypothesizing here WT. AA plans on increasing frequency on LAX/SFO-JFK routes. That should help cover some of the lost capacity. AA is still the premier carrier from LAX-JFK and very close if not the premier carrier on SFO-JFK.

AA’s problems at LAX are twofold – LAX-NRT and LAX-PVG – two routes where they lose enormous amounts of money trying to fly routes where they are far weaker than DL and UA. DOT data consistenly shows that AA’s average fares in both of these markets are well below DL or UA’s and DL gets more revenue just on its LAX-NRT flight than AA gets on BOTH of its two LAX-Asia flights. AA has a revenue problem from LAX to Asia that no new aircraft or BK can fix.

1)Do you know AA's profit/loss for those two routes? DOT data only gives a "window' of what's happening-not the entire profit/loss picture. Yes, one can get a rough idea, but not down to the "dollars and cents".
2)Regarding NRT, lets not forget the JL/AA JV/ATI has which as you remember DL DESPERATELY was trying to persuade JL to leave OneWorld and join DL/Skyteam. 😉

While AA is larger than DL and neck in neck with UA (post merger), AA is most definitely smaller than DL at SFO whether you talk about domestic only or int’l and whether you look at passengers boarded or revenue.

Using DOT data for SFO:

AA:2012 TOTAL:1,535,761
DL:2012 TOTAL:1,434,930

Looks like AA beat DL out...;-)

DL is also larger than AA in the entire west coast region. LAX is the only major west coast city where AA has is on par with or larger than DL and UA.

We really weren't talking about the entire West Coast anyway-only LAX and to a certain extent SFO.

We know AA doesn't compete with DL @ PDX or SEA. Truth be told, outside of SFO,LAX,SAN,PDX and SEA, there isn't much left on the West Coast. Also, size-wise, AA@SAN, while not larger than DL, certainly does "hold its own". Add the BA and JL numbers (certainly the BA numbers) and AA's numbers in SAN improve even more.

Don’t confuse revenue and cost strategies. The new fleet is about reducing costs but it does next to nothing to change revenues. Customers rarely consider aircraft type as a purchase driver other than to use small RJs on routes well beyond the tolerance people have for them, and only when other carriers offer an alternative (larger RJs or mainline.)

Sure it does. It allows optimization of fleet-which in theory should increase revenues as AA will be able to start/restart flights which it has cut the past number of years.

 

[Jacobin777]

There is no route that AA could fly with a new fleet that it can’t fly now. AA is using 2 class RJs at both LAX and NYC. Both airports are effectively limited by capacity so whatever AA adds with a new aircraft means something else has to be taken out.

Why has AA ordered larger regionals and A319's? I think you are grasping for straws here. Replacing MadDog 80's with other planes certainly is a major difference.

Add B77W's, etc. and we see that AA's new planes will indeed make a difference.

AA could carry a lot more passengers from LGA than it does with its existing fleet; correct me if I am wrong but AA rarely uses the 757 at LGA anymore while DL has hourly flights from ATL on the 757.

Rather irrelevant.

I’m not interested in a “my tools are bigger than yours” argument but simply to demonstrate that AA has the potential RIGHT NOW with its current fleet to gain whatever revenue it needs; if it can’t get that revenue now, neither bankruptcy or a new fleet will change that.

AA does not at this current moment have the right tools. Just because it might be working for DL doesn't mean it would work for AA.

Again, as I've incessantly stated, just like it took DL a few years during/post BK to see the "fruits" of its BK, so too it will take AA a few years.

As much as you would like to think that new aircraft will change the outlook for AA, they are just machines to deliver transportation. Customers buy a service. If anything, your faith in the ability of aircraft to solve AA's problems without acknowledging the revenue generation and human relations issues that AA faces ignores what it will take to turn AA around.

Actually not. Even a few % points make the difference between a profitable route and a loss-making route. With fuel being 30%+ of a particular route, it certainly can make the difference.

AA never had a revenue problem, but an expense problem, and 30%+ of that expense is fuel. If they can decrease that even by a few % points then it makes all the difference in the world.

Other expenses (such as salaries, leases, etc.) have gone down as well.

It was never "we'll order new planes and become profitable". I've never read that anywhere, have you?

The most important asset AA has is its people – and right they are demoralized and broken from a multi-phase restructuring process that has dragged on for a decade, well beyond what other carriers have taken to get the job done.

A few people here and a few unionists crying isn't going to change how AA service. I fly a lot (70-100k miles/year every year for the past decade) and speak with practically the entire crew of a plane (sometimes even pilots) and while most would like to see Horton go (and the admit it might get worse with Parker), very few, if anyone will risk their jobs-especially in this environment.

Passengers want to receive service from employees who are happy to serve them.
There is an abundance of evidence on this forum and in surveys elsewhere that AA has an enormous job to rebuild relationships with its people and, until it does that, it ability to convince passengers that AA is the best place for them to spend their travel dollars will be limited. A new fleet can’t fix that. Bankruptcy can’t fix that.

Maybe in my hundreds and hundreds of flights the past few years have I received bad service. That's what most of my peers who fly AA state as well. The worst is probably some F/A being semi-nonchalant. Never rude.

Regards.