JUSTICE DEPT SUES TO BLOCK US/AA MERGER

[Jacobin777]

Thanks for your replies, Jacobin.

Do you think SFO dropped AA from the list despite listing DL and WN as tied? AA didn’t make SFO’s list of the top 3 rankings because they are smaller than UA, VX, and DL and WN. Period.

According to this photo which I took of the DOT, you would be incorrect. AA is indeed larger than DL@SFO.

http://img163.imageshack.us/img163/797/a7qn.jpg

Granted this is domestic only but gives a decent view. Yes DL flies internationially to NRT and has JV/ATI with AF/KL/KE but AA has it as well with JL & BA. That basically negates DL's share. Also, I wouldn't be surprised if AA does something with CX down the road and that would certainly inrease OneWorld's share.

I don't know Skywest's number representing DL is so that is why I previously mentioned mainline. AFAIK, Skywest for DL isn't too large anyway.

I’m not sure what difference it really means to this merger anyway.

I agree, hence why I stated it earlier.

Shall we also mention that AA is reducing some of its Tokyo flights to less than daily and UA is downgrading its KIX service?

Shall we also mention that DL is ending SEA-KIX? We'll see how SEA-ICN and SEA-HKG does. Those two routes aren't a "sure bet" either.

While AA might be ending a couple of frequencies to NRT temporarily, with JL adding SAN, BOS, etc. its going to negate that to a certain again. Again, might I stress, only two days/week cut temporarily for the entire NRT operation.

I also wouldn't be surprised to see AA eventually start MIA-NRT once they get the B789s in.

Likewise, DL is achieving some of that same financial strength relative to other network carriers that is allowing them to competitively take on battles that other carriers have not dared to do.

They did it with an improved cost structure. Likewise AA will be able to as well.

Their entire NYC strategy didn’t come cheap – launching 125 new flights over a couple months – yet DL did it and is clearly capable of supporting large internal growth initiatives. Relative to the west coast and other regions where DL needs to grow (including to

Latin America), it says DL has the resources and financial strength to internally grow and take on well-established rivals.

As I have previously mentioned:

1)DL was playing "catch up" to AA, etc.
2)AA was seriouly "asleep at the wheel". That is a well known fact. That being said, the same won't be happening @LAX.
3)DL definitely took advantage, especially of Parker with purchasing those LGA slots.
4)DL is has done very poorly in Latin America and is waaaaaaaaaaaay behind AA in Latin America.


Apropos, how's that Trainer facility doing? Not well, ey?

 

[Jacobin777]

Note that UA touted how much larger the merger would make it but in the most recent month UA had shrunk enough to allow DL to be slightly larger; UA is also pulling back in some key west coast-Pacific markets including NRT and SYD where DL stands to gain. All the hyperbole about what will be done before a deal has to face reality after the merger, usually a couple years later. AA/US, with or without the merger will not be as large as you and others think they will be simply because there is too much unprofitable flying in their network which they have not dealt with.

At least we agree on this(finally). That is IMHO part of the DOJ's complaint. The merger doesn't improve service, more cities, etc. In fact, if anything, it makes the condition worse.

BTW, did you happen to notice that a veteran industry analyst commented about AA’s financial problems at LAX? Holly Hegeman picked it up and it is posted on the US forum… but it has been said elsewhere. I’m not the first one to recognize that AA is doing a lot of money-losing flying to hold onto market share.

Holly Hegeman? Bwahahaha! She can't even get her facts correct!!! If you take her seriously then I dont' really think we have anything to discuss.

I have no doubt that AA will benefit from larger regional jets. I’ve never said they wouldn’t. I have doubted and still do that they can operate as many mainline flights as they have PLUS add the large regional jets.

That's exactly what is to be seen. You say "nay", I say "yay". I do believe it will not only help AA, but help AA tremendously. I think ORD will be the biggest benficiary of this.

And my point still remains that larger regional jets don’t fix the revenue problem. IF the revenue was there, AA could fly them on their existing aircraft. The new fleet will be cheaper to operate but they don’t generate revenues that AA couldn’t get otherwise.

AA has 2 class 70 seaters already and they also have mainline aircraft they could use to go after the revenue if it was really there.

AA's cost structure was simply too prohibitive to optimize anything-that is the reason why it is in the current situation it is in today (or rather was in yesterday).

Again, I guess we'll have to see how everything "plays out" the next few years.

And there is no scenario that a current generation or even one generation old aircraft is cheaper new than used. If so, please show me a real life example of a fleet type.

Practically every carrier on the entire planet has stated that using an old and inefficient fleet/planes has been hurting their bottom line.

If not, then why have of carriers purchased THOUSANDS of new planes just the past 2-3 years alone? The B73MAX and A32XNEO order book the past 2-3 alone has been staggering.

 

[Jacobin777]

AA is taking on enormous debt in order to reduce operational costs in the short term while other carriers including AA, B6, DL, and WN among others are also adding lower CASM aircraft but doing so without taking on near as much debt. UA is also taking on huge amounts of debt for fleet renewal and will be parking older aircraft very aggressively as well.

While its best to have no debt, having debt isn't the problem. Its servicing the debt which become a problem. If AA can get rates which leads to a positive ROI on the debt, then its certainly well worth it. Maybe DL hasn't been the beneficiary of that (maybe it has, I don't know).

As much as it kills you to admit it, AA is investing tens of billions of dollars in fleet renewal and will get very little real operational cost advantage relative to its peers.

Again, you are hypothesizing. There are a multitude of variables involved besides the cost of the plane.

The ORD comparison is about the LOCAL market, not the flow traffic that AA has carried. AA’s share of the AA local international market has dropped dramatically over the past 10 years. AA did indeed carry more of the local ORD international market just ten years ago. UA’s BK and restructuring was very long and painful and UA did lose a lot of revenue and market share in many of its key markets including ORD and AA benefitted from it. The pendulum is now swinging the other way and there are no indications that UA is going to give up what it has regained.

I've given you some numbers and references, I would like you to do the same-otherwise your comments are nothing more than hyperbole and conjecture/assumptions.

Also, if you say the "pendulum is swinging", then AA coming out of BK will be able to aggressively fight for corporate contracts as well.

The issue about labor is not that they blame Horton but that they have a very bitter taste in their mouth period and no one realistically expects that AA mgmt will be able to avoid further cuts if they remain as a standalone. Go read what Holly said if you think I am making it up. AA’s unions chose Parker because he presented a business case that involved less cuts for AA labor and also allowed US employees to benefit; of course both sides were excited about that prospect but it has yet to be shown that the promises were viable. Without the merger, AA mgmt would likely be right back with a plan that isn’t built on promises to labor that can’t be kept.

You and I both know Parker's "lollipops" are not based on financial reality. Also, if the DOJ blocks the merger, most people with any rational sense know it wasn't Horton's fault.

AA already has a multi-year deal with the various unions. Its current cost structure is already generating record revenues. Once (hopefully) this meger is blocked and AA runs as a stand-alone company, it can focus on other things rather than having to deal with this b.s. merger.

Quite simply, AA lost a lot of competitive ground over the past 10 years because of their incomplete and drawn out restructuring which is still not finished. You and others expected they would waltz into BK and come out having regained all that they lost even though evidence was strongly against AA’s growth plan.

I don't know who's ever said that, certainly not me. What I've always stated is that AA needed to redo its cost/fleet structure to become competitive. It has indeed been doing that.

Further, I have repeatedly said that the combined AA/US won’t be as large as the combination of the two either because of divestitures or because reducing capacity is the only way to make the economics of a merger work. Now it appears that AA/US will likely have to either divest a great deal AND reduce capacity as a merged company OR fight it out as a standalone which will involve reducing some of the underperforming capacity which AA has still not dealt with and which is unsustainable for the long term. There is no easy fix for AA’s competitive position; planes won’t fix it, a merger won’t fix it, and AA’s competitors aren’t going to stand by while AA works to restore what it lost. They are all moving forward with plans to grow, including in AA’s key markets. This is truly make or break time for AA after 10 years and the DOJ’s actions don’t make it any easier. But to somehow think that AA is going to come out swinging again tomorrow was a stretch 10 years ago and it is still a stretch today. One day, perhaps.

AA had a multide of problems and the rise in oil really did it in. Arpey should've taken advantage of the BK process like United and Delta did.

Regardless, IMHO AA has finally started to address is many deficiencies. Whether AA can compete is to be seen. I think it will, you think it won't.

I think its best we leave it at that.

Again, if the merger goes through and Parker & Co. run the show then all bets are off.

 

[robbedagain]

http://m.usatoday.co...le/news/2681345
This is absolutely ignorant and a possible scare tactic.
"No plan B"? Give me a break! You would think a major carrier would have a plan A-Z. No plan B is just admitting there are uneducated idiots running this place. An admission of stupidity IMHO.

bigmac while i agree with you look no further than when us said way back when they said they had no plan b i cannot imagine that any company would not have a plan b but stranger things have happen before

 

[WorldTraveler]

Jacobin,

I’m not sure it is terribly productive to get into a “mine is bigger” contest but why would you exclude DL’s int’l boardings at SFO when you have previously said in other respects that AA and DL are peers and not AA and WN? DL has an international flight from SFO and it is as accurate to include DL’s boardings on that flight as it is to count AA’s from MIA when talking about how dominant AA is there.

As a percentage of DL’s total capacity in Japan, cancellation of SEA-KIX is probably smaller than AA’s reduction of ORD-NRT… and I do believe AA is also reducing JFK-HND but you can check if you want.

AA, DL, and UA’s reductions in Japan are all related to the weakened yen which reduces demand for travel to the US. DL’s net service from the US to Asia is increasing in the next year. But so is AA to Latin America. Companies focus on their strengths and people do the same thing. As a reminder, DL makes money flying to Latin America even if it is smaller and AA outperforms DL in JFK-GRU, the single direct route they compete on. No one ever said DL is out to push anyone out of SFO or that what DL does in LAX or AA does in SFO will make or break either one. The difference for AA has come in NYC where AA has fallen well behind DL and UA and where there is no path by which AA can narrow the gap. In an industry where size does matter, DL has an advantage. AA isn’t trying to prove they haven’t been impacted in NYC but instead are focusing on what they have to do to compete in the markets they can.

One of those markets is LAX. AA and DL can do as much as they can with what they have but both are going to be limited by gate space. AA has the advantage of the Eagle terminal but no one expects that DL will pass AA. But it also doesn’t change that industry analysts DO recognize that AA is losing a lot of money at LAX in part because of the costs of operating the 762s but also because of their very weak Asian flights. The 321Ts will fix the transcon problem but there is no clear solution to the Asia flights. In contrast, no one is saying that DL has a problem at LAX. There is not an investor in the world who would expect DL to have a bigger presence but lose money doing it. It also doesn’t change that DL’s rapid growth at SEA means that they will be in a position to start growing to Asia from other gateways and I can assure you that DL will add Asia flights from LAX.

But again, every airline is limited by facilities at LAX and there is no known way that will change. For the airlines, it means that yields at LAX can only go up which is good for all of the players.

I have no doubt that the Ejets will help AA at ORD – but remember that UA has more of them coming too and that highlights precisely why I believe you are putting too much faith in what AA is gaining in terms of fleet when other carriers are doing fleet upgrades and additions as well.

AA’s new labor contracts have nothing to do with its ability to generate revenue. Labor contracts determine the costs AA will pay to operate those flights but AA could have generated that revenue just as easily with its existing fleet… and its ability to generate revenue is no more assured with new planes than it is today. The new fleet types including the Ejet will give AA the ability to fly long, thin routes that they might not be able to today – but how many 1500+ mile flights will AA operate with the Ejets? There is no evidence to prove that a passenger is any more likely to book AA tomorrow on a A321 than today on an S80. Revenue and cost are not the same and the fleet will reduce costs.

I’m sorry but the ownership costs of a new aircraft are not going to be lower than a used aircraft regardless of the deal AA got. PERIOD. The total costs might be cheaper for a few years based on a maintenance holiday but AA WILL start paying for maintenance and still have to service the debt.

Airplanes do have life limits so there is a certain amount of new aircraft purchases that have to happen unless fleets are going to shrink.

And of course debt service is the issue. Aircraft are secured assets so even in BK airlines have to pay for them. There is no option to take on aircraft debt and not pay it.

The airlines report very rich data about their operations so it will not be hard to tell in a couple years whether AA’s strategy of buying hundreds of new aircraft really helps or whether DL’s strategy of more limited growth has been better.

And WN, even if you don’t think they are in the same league as AA, has an older fleet compared to the standards of what AA will have.

AA’s strategy of buying lots of new aircraft is driven by a need to get OPERATIONAL costs down quickly even if there will be enormous bills to pay down the road. And AA is hoping to dramatically reduce the size of its US maintenance operation and the “best” way to do that is to get rid of the older aircraft that need more maintenance and replace them with new aircraft. DL and WN don’t see a need to change their maintenance strategies. In fact, DL and WN will be growing their network over the next few years to take advantage of opportunities and will be using their new aircraft as growth rather than replacement aircraft.

And, yes, DL has said that Trainer has pushed down the cost of jet fuel relative to diesel based on increased supply. DL also has repeatedly said that Trainer doesn’t have to make a profit as a standalone entity which is what accounting rules require in order for the transaction to be successful to DL.

I want AA to do well and I know you want the same thing. But AA lost a lot of ground and they aren’t going to make it up as fast as you think, in part because other carriers aren’t going to stand on the sidelines.

The entire legacy industry was weak at the time DL and UA were in BK. Now DL and UA are strong while AA is trying to restructure and emerge. The game will look a lot different now than it did for them.

As with everything, we can check back in a couple years and see how it all works out.

For now, the biggest task facing AA is to get on with the future and not be tied up in a merger battle that they probably will not win without giving up a lot of assets. AA can make it on its own but it needs to get going.

 

[Thomas Paine]

Practically every carrier on the entire planet has stated that using an old and inefficient fleet/planes has been hurting their bottom line.

If not, then why have of carriers purchased THOUSANDS of new planes just the past 2-3 years alone? The B73MAX and A32XNEO order book the past 2-3 alone has been staggering.

What else could they do with the billions they took from their workers? Buying airplanes is an easy way of routing some of those funds to the banks bottom line while still crying poverty.

 

[Thomas Paine]

You're not liking what you are reading.... not the first time that has happened on this board.

No, I did not say that DL would buy AA in its entirety. Again, if you think so, find the evidence.

And, yes, I did believe that AMR's creditors would back a standalone plan over a merger. But Parker decided to woo AA labor which put on a childish fit to convince the creditors that they had better do what they wanted (reduce the pain AA mgmt. was asking of AA labor).

Now that AMR could be stuck in BK for months longer and competitive pressures on AA continue to build, you can't help but wonder if the creditors are seriously having second thoughts.

Add in all of Parker and company's communications that have now become public and there seems little doubt they would like to have a redo.
Problem is that they cut AA mgmt. off at the knees and there is no quick fix for a plan B - but you can bet there are people at Centreport who are busting their buns to come up with one.

Wasn't the merger plan B? What has changed since AA's lawyers argued that their standalone plan would succeed if the Judge granted their requests to trash all those contracts? If there was no plan then what was the basis for the Judges rulings?

 

[traderjake]

Gina Talamona, a Justice Department spokeswoman, responded yesterday to questions about the agency’s approach by citing the lawsuit and comments made Aug. 13 by Assistant Attorney General Bill Baer on a conference call with reporters.

The so-called legacy airlines are focused on each other, and “to a large extent Southwest and the other low-cost carriers are not competitive constraints in many, many respects,” Baer said on the call.


That argument spurred Helane Becker, a Cowen & Co. analyst in New York, to question the Justice Department’s rationale in concluding that Southwest wasn’t “a viable fourth competitor,”as she put it in an Aug. 20 note to clients.

“By what standard does the government cite they aren’t a serious competitor?” Becker wrote. “Southwest is one of the most competitive airlines, with competitive air fares throughout the domestic US. Indeed, the airline has limited international service, and does not charge baggage fees, while most other airlines have bag fees.”
Besides carrying the most travelers on domestic routes, Southwest is the largest airline in the U.S. using the industry benchmark of miles flown by paying passengers. On that basis, it is more than twice the size of Tempe, Arizona-based US Airways.

http://www.bloomberg...html?cmpid=yhoo

 

[eolesen]

Helene knows better. WN won't fly to a market unless there's a dozen 24 hour Walmarts within a 20 mile drive of the airport. That rules out the AVL's and SPI's of the world, and those are the markets that VX, NK, B6, and even F9 won't touch.

 

[WorldTraveler]

The DOJ has some 'splaining to do but that is why there will be a trial and I expect their objections will become very clear.

The likely reason why the DOJ said that WN is not a significant factor in providing pricing discipline is because they do not have the presence in many AA/US key markets and in many cases do not have the ability to gain enough access to matter.

It is certain that the DOJ will note that CLT and MIA have virtually no LFC presence while DFW's is minimal as it is at DCA. In contrast, ATL, DEN, and JFK have major LFC hubs at the same airports as legacy carrier hubs and LFCs have fairly unfettered access at IAD, PHL, DTW, ORD, MSP, and at HOU across town from IAH. As long as restrictions of the Wright Amendment remain in place - a bit more than a year more - WN cannot serve as a meaningful competitor in the N. Texas market; in contrast, it is very clear that they influence fares at ORD even though they serve an airport on the other side of the city. In contrast, there is ample evidence that fares at DCA are not significantly affected by WN's presence at BWI.

The AA/US network has far less opportunity for LFCs including WN, to provide pricing discipline to the legacies than exists in DL and UA's networks.

The DOT also has ample fare data that can show how closely fares correlate with the level of competition in the market and whether LFCs influence network carrier fares.

The fact that so much of US' network at DCA involves small cites (and capitals that have Wal-Marts) means that divestitures will either have to be such that the slots the DCA-hub portions of AA's operation (ie DCA to DFW, MIA, ORD etc) or it will involve the slots involving small cities, which means the slots can realistically only be handed over to network carriers.

As much as some want to try to argue otherwise, there are significant structural differences between AA/US and DL/NW, WN/FL, or UA/CO and those reasons will become apparent in the trial - unless people choose to see them now.

 

[Thomas Paine]

Gina Talamona, a Justice Department spokeswoman, responded yesterday to questions about the agency’s approach by citing the lawsuit and comments made Aug. 13 by Assistant Attorney General Bill Baer on a conference call with reporters.

The so-called legacy airlines are focused on each other, and “to a large extent Southwest and the other low-cost carriers are not competitive constraints in many, many respects,” Baer said on the call.


That argument spurred Helane Becker, a Cowen & Co. analyst in New York, to question the Justice Department’s rationale in concluding that Southwest wasn’t “a viable fourth competitor,”as she put it in an Aug. 20 note to clients.

“By what standard does the government cite they aren’t a serious competitor?” Becker wrote. “Southwest is one of the most competitive airlines, with competitive air fares throughout the domestic US. Indeed, the airline has limited international service, and does not charge baggage fees, while most other airlines have bag fees.”
Besides carrying the most travelers on domestic routes, Southwest is the largest airline in the U.S. using the industry benchmark of miles flown by paying passengers. On that basis, it is more than twice the size of Tempe, Arizona-based US Airways.

http://www.bloomberg...html?cmpid=yhoo

SWA is mainly a competitor of Greyhound, Amtrak and the family car.

 

[eolesen]

1) WT overstates the importance of Wright's perimeter falling. DAL is still a capacity controlled airport in that there are a fixed number of gates, and WN is already very highly utilizing those gates today. I'd expect service adds to LAX, FLL, MDW, ATL, BWI and LGA, but it is going to come at the expense of markets inside the current perimeter. My guess is places like BTR, LBB, MAF and AMA take frequency hits if not outwright withdrawals from DAL. And that buys further into my 20 Walmart theory, since those cities don't meet that test today, and are historical anomalies in WN's network...

2) WT has also overstated the impact of the new aircraft order. Sure, AOC goes up, and MMR goes down. But fuel also goes down, and that's a huge benefit that DL and UA accomplished years ago. You can't compare DL picking up some piecemeal used shells with replacing the guzzling MD's or the dinobodies on the transcon, especially if AA sees similar results to what AS experienced with their aggressive refleeting.

3) WN is no longer what I'd consider the LFC they were ten years ago. They may have a simpler fare structure, but they're not the cheapest in many cases, and only seems to show a little more restraint on closing out lower fare classes later than AA, DL or UA. My guess is that's because they're still on a leg based RM, and not using POS or O&D like the other guys are. And it will only get worse as CBRM enters the picture. Likewise, their stance on fees made great advertising, but was largely due to the core of their res system being from the 1970's. I believe they're already in acceptance testing of the replacement res and check-in system for their international system, so the approach to fees may change before you know it as well... In some ways, it has already started,

4) Anyone who thinks WN is still competing against the slower forms of transportation is in serious denial...

 

[john john]

AA could theoretically file new 1113 motions and attempt to cut costs further, but why, exactly, would managment do that?

Those pests’ pension

 

[swamt]

FWAAA, yes management would do that. Matter fact I would guess that they will go after more concessions if this merger is not allowed to go forward. AA was putting everything on this merger. If they have to go back and nego another plan to come out of BK as stand alone, then yes, I see the concessions growing as they will not have the revenue and profits as large as they would have had if they were to come out of BK and merged with US. Plus, it will take them longer to start reaping the rewards they need to compete with the DL and UAL, and let's not forget SWA. Once the W/A amendment goes away (Oct 2014) then AA and SWA will be even larger rivals for the DFW market even though we are at separate airports. And if SWA decides to open up some gates at DFW then you will see even more head to head competition upon AA and they will feel it a lot more than if they were able to merge. I completely agree with the annalist out there that AA will not survive the "long" run against UAL, DL and SWA. The same could very well be said for US, I just couldn't guess on a timeline.

 

[WorldTraveler]

E,
Thanks for your responses.
Yes, I agree that WN is not the pricing leader that they once were and that could also be why the DOJ is not as convinced that trusting them to “police” the legacy carriers is a valid strategy any longer. As much as they or others want to say otherwise, they eliminated FL which was a lower price leader in many key WN overlap markets. F9 is on the ropes. B6’s network is so heavily JFK and BOS focused that they really aren’t a major influence in overall domestic pricing outside of those markets. WN, like any business, is going to do what they can to maximize profits and that means there is no reason for the to price below what they need to – and that “need to” level is only a bit lower than the legacy carriers. WN also gets a lot of credit for being a low fare carrier because it doesn’t have ultra-high walk-up fares but still manages to get average fares comparable to or better than the network carriers.
And you are absolutely correct that WN can’t get those kinds of average fares competing with ground transportation; they compete for the same passengers as the legacy airlines and they do it very effectively.

Where we disagree is the impact of the fall of the Wright Amendment on AA at DFW. Here are a few factoids for those who doubt:
WN now has almost identical passenger shares to AA when you look at DAL and DFW as a single unit to the cities of MCI, STL, and BHM, cities which WN has managed to have excluded from the Wright Amendment already. After DL closed its DFW hub and until WN rec’d exemptions for those cities, AA carried 80%+ of the passengers from DFW/DAL to those cities. When WN entered those markets, fares fell dramatically and with it so did AA’s revenues in those markets. Fares have come back but WN held onto low fares long enough to obtain parity with AA in terms of revenue.
You frequently say that business demand in the Metroplex is well spread out but if that is true, why does WN carry the vast majority of the passengers and revenue from N. Texas to cities within the Wright Amendment perimeter (Houston (all airports), SAT, MSY, ABQ etc?).
The distance (realistic commuting if not the physical distance) between Love Field and DFW is shorter than the distance between any other two airports in a metro, one of which has a large low fare carrier presence and one of which is a legacy carrier hub. Ex… HOU/IAH, ORD/MDW, MIA/FLL, EWR/JFK, BWI/DCA…. DFW is far more susceptible to losing traffic to DAL than other multi-city airports because of geography.
WN will have enough gates at DAL that they can mount a very effective operation, just as they have at MDW. WN has 738s arriving in significant numbers over the next couple years which will carry about as many people as AA/US’ 321s and 757s at comparable or better CASMs. WN’s gate utilization at DAL will likely be higher than for its operations at some other airports. Their execs have already said that they will reduce schedules to some inside Wright cities in order to accommodate growth to new cities – but will be able to replace some of the capacity lost to frequency by using larger aircraft. And WN will maximize DAL for local operations even more than it is today, pushing connecting traffic over other focus cities.
It is precisely because of the Wright Amendment that DFW is protected from large-scale low fare competition. If you look at US metro areas with or without multiple airports, every one of them has at least a 10% low fare carrier presence in the major domestic markets either from the same airport as the network carrier or via the low fare carrier hub, EXCEPT the Metroplex.

And yet in some cases, the hub carrier still manages to obtain higher average fares in the area and still have abundant low fare competition. Starting in the SE, DL has a domestic revenue premium to the low fare carriers in ATL, DTW, MSP, and SLC - and yet low fare carriers have at least a 10% share in multiple markets from those hubs – and there is room for low fare carriers to expand. Same for UA at IAD, EWR, ORD/CHI, and DEN. True for US at PHL and AA at ORD/CHI. And in each of these cases, air fares at these legacy carrier hubs are heavily influenced in multiple markets by low fare carriers.
But it is NOT true at MIA, DCA, CLT, and DFW. MIA and FLL are different enough markets and AA’s fares are often not linked to fare activity at FLL. LFCs have a minimal presence at CLT. We’ve talked about DFW. And although LFCs do have slightly above 10% share at DCA, much of it is concentrated in a single market – DCA-BOS by B6 and there is also a portion that involves F9 –which is very unstable and which no one would hold out as being an effective long-term competitor.
There are major structural differences between AA/US and other mergers and the DOJ was effective in increasing LFC presence at EWR, the airport that was the biggest concern in the UA/CO merger. UA/CO ended up giving the entire PMUA slot portfolio in order to gain merger approval.

In reality, a large chunk of the DOJ’s objections will likely fail when the Wright Amendment falls but so too will a lot of AA’s revenues. MIA is a very expensive airport for domestic service which will continue to make it unattractive for LFCs. CLT is cheap but there are very few gates available for competitors.
Because hubs also generate market strength in the region around the hub, the DOJ’s concern is related to regional market dominance but can be correct by hub-specific actions. There are significant changes that the DOJ will be looking for in order for them to be able to say that AA/US will be acceptable and they differ by hub.
It also doesn’t change that even if the DOJ’s objections are overcome by the fall of the Wright Amendment, there will be a massive revenue shift in the N. Texas market from AA to WN. They can be a very competitive competitor and it is precisely because the DFW market is so large and doesn’t have meaningful LFC competition that WN sees such huge opportunity. Considering how profitable DFW is for AA today and how this trial pushes out AA’s ability to emerge against WN, the confluence of the DOJ’s actions and the fall of the Wright Amendment have ENORMOUS strategic implications for AA – independently or in a merger with US.

As for fleet, AA and DL have actually have very similar fuel burn per ASM figures right now; DL so far hasn’t gained a huge bump in fuel efficiency relative to AA. Looking into the future, you and others are correct that THEORETI CALLY, AA should have a cost advantage over DL because of its larger fleet renewal. The M90s and 717s have comparable fuel burn to current generation aircraft which AA is buying. The 717 has better fuel burn per seat than the 319 which I know AA intends to use on longer routes which the 717 cannot fly but the 717 is much more fuel efficient than the CRJs and DL intends to use the 717s to most directly reduce CRJ flying. The M90 has almost identical fuel burn to the 320 and 738 so DL is getting an aircraft for about $30M less per plane that will cost them increased maintenance for about 5 years and after that the maintenance difference between DL and other current generation aircraft is not much different. The acquisition cost difference between 60 M90s and 60 738s is about $2B; DL isn’t going to spend $2B more on maintenance for those aircraft in 5 years. DL is buying 100 739s which should have comparable, if not better, economics to the 321s or 738s that AA is buying; DL will be using its 739s to replace life-limited 757s and 320s while AA will be doing that for the M80s. AA and DL will likely both each still have 50-75 757s in 5 years. The real difference comes down to that DL is, as of now, choosing to keep its fleet of M80s which AA is saying it will not. If you look at DOT data, actual fuel burn difference per seat per flight hour is about 20% per block hour. However, DL’s M80s operate on flights on average about 45 minutes shorter than AA’s M80 fleet. The average DL M80 flight is about 500 miles because DL’s route system is so much more heavily centered on the more densely populated eastern US. Every flight spends about 30 minutes on the ground before and after takeoff and the difference in costs for the M80 compared to other aircraft on the ground  is negligible. But DL still has plenty of M90s which fly on average several hundred miles further than the M80s while the 320s and 738s fly even further. The fuel burn advantage for newer aircraft just doesn’t overcome the higher acquisition costs on flights for the hundreds of flights per day for which DL uses the M80 and DL doesn’t believe it is worth spending billions of dollars to replace aircraft for which it gains a 5 year maintenance holiday at best.

More significantly, though, DL uses the M80s and even its DC9s in markets where it has maintained its market presence and pricing power. DL is the largest carrier in nearly all of the markets where it uses the M80s and gets a revenue premium compared to its competitors. Thus, it is far less necessary to have a cost advantage if you can generate a revenue advantage. Even in NYC where AA and DL use comparable aircraft, DL has a revenue advantage because of its size; AA has significantly reduced its presence in several JFK-Caribbean and markets while DL has jumped into those markets using the very same 738s that AA has. What gives other than that DL has gained the size in NYC where it can retain business which AA says it cannot?
And part of the reason why AA is under such pressure to replace aircraft now is because it has accumulated debt for 10 years just because of its losses.
And that brings us back to DFW, DCA, MIA and CLT – merger or not. There are vast competitive changes coming to N. Texas whether AA merges or not. In order to get this merger passed, US will have to give up significant access at DCA, at a minimum, and likely CLT, the latter in the form of gates that other carriers can use to add new service above what US operates and the former in terms of slots – or a transfer of revenue generating opportunity . MIA is probably not dramatically changed other than that its high costs favor expansion by network carriers like DL that are growing in MIA and can do so because they have already have a presence there and can attract the higher fare passengers necessary to cover the higher airport costs – but that is not likely affected one way or the other by the merger.

For years, people on this and other boards have resisted the notion that AA has had a revenue problem despite overwhelming evidence from analysts and market specific data to show that to be the case. Just as AA goes thru BK to gets its costs in line with its current revenues, it faces another massive assault on its revenues in the form of the Wright Amendment falling – which happens merger or not - and potentially having to give up revenue generating capacity in DCA and CLT if the merger does go through. New aircraft will reduce costs but far too many people seem unwilling to acknowledge that other carriers are making fleet changes that will reduce their costs as well – and those carriers don’t face the revenue challenges that AA faces in the future.
The simple fact is that AA spent ten years in an unfinished restructuring and lost enormous ground in key markets while competitors have moved much more aggressively and decisively to gain their own competitive advantages over AA. AMR’s creditors are now turning to a merger to help create the mass they believe is the best way to overcome the revenue disadvantage that AA faces – but it doesn’t change the fact that two-thirds of industry capacity and AA and US’ largest competitors – DL, UA, and WN are all capable of mounting a very aggressive assault on AA and US (individually or merged) over the next few years which is exactly during the time that AA and US need to be able to effectively compete.
As for the arguments that the market will be worse off in the long term in unlikely case that AA and US both fail, the DOJ would likely counter that they can’t overlook the very real anticompetitive aspects of this merger to eliminate the possibility of a failure that may or may not happen and to make the American people pay the price. And more significantly, given the indications of what the industry has done since the past 3 mergers and the internal statements which have now been uncovered, there is not much reason to believe the merger would produce any benefit for consumers anyway.