Merger Relief for American Airlines: April 24, 2012
- Thread starter USA320Pilot
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WorldTraveler
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it sure is fun.... make sure you get some soda pop or beer, depending on your preference.
hey mistified,
note that the posts are dated.... for good reason.
AA was indeed reporting industry leading RASM last spring... but you do remember that little operational meltdown that took place last fall? Well, that marked the end of AA's RASM performance. You can go back and check out FWAAA's posting activity because he was very proud of AA's RASM growth as he should have been. He hasn't posted that stuff in about six months.
You might also want to note that DL has been reporting healthy RASM growth and has noted that their RASM growth has exceeded the industry because they have been moving corporate revenue from other carriers to DL.
WN's RASM growth has also begun to recover.
The law of averages says that when someone is above average, someone has to be below average. Among large jet carriers, DL has been well above average for going on a couple years. US has been at average. AA was above average for a short time and has been at or below average for far longer. UA has been well below average but recovered very nicely in the most recent month but had to cut 8% of their capacity to do it. WN has been below average but is also recovering.
The statements regarding revenue growth were true on the dates each were made.
BTW, don't forget to copy the whole sentence unless of course you want to be shot out of the water for sloppily not include including the whole text that was said. Anyone can make a statement if you manipulate what has been said. But you really want to know the truth, don't you?
US did not bid on AA; AA agreed to a merger in which AA remains the largest part of the new company - proportional to the size and value of the two companies going into the merger.
DL didn't choose to bid on AA; they did not say why but it should be pretty obvious that they believe they can obtain what they want that AA has at far lower expense using other methods. They bought half of Virgin Atlantic and a bunch of LHR slots for less than the price of two 777s. DL is also growing their own network using their own employees and by buying used aircraft acquired from other airlines.
As I have said all along, AA/US was fully expected - and that just gave other carriers plenty of opportunity to develop their own strategic plans.
Since the AA/ US merger hasn't even been approved and AA might not be out of BK for six months (which is when the merger will become effective), how about you hold your applause until we see the results.
WN will be within months of being able to fly from DAL to every US domestic airport while DL's equity stake in VS is expected to be approved and a JV put in place.
Your excitement about how well AA/US looks might be tempered by the then-current reality of the industry.
touché, Josh.
The beer should be union-made. Make sure it is domestic beer, though.
hey mistified,
note that the posts are dated.... for good reason.
AA was indeed reporting industry leading RASM last spring... but you do remember that little operational meltdown that took place last fall? Well, that marked the end of AA's RASM performance. You can go back and check out FWAAA's posting activity because he was very proud of AA's RASM growth as he should have been. He hasn't posted that stuff in about six months.
You might also want to note that DL has been reporting healthy RASM growth and has noted that their RASM growth has exceeded the industry because they have been moving corporate revenue from other carriers to DL.
WN's RASM growth has also begun to recover.
The law of averages says that when someone is above average, someone has to be below average. Among large jet carriers, DL has been well above average for going on a couple years. US has been at average. AA was above average for a short time and has been at or below average for far longer. UA has been well below average but recovered very nicely in the most recent month but had to cut 8% of their capacity to do it. WN has been below average but is also recovering.
The statements regarding revenue growth were true on the dates each were made.
BTW, don't forget to copy the whole sentence unless of course you want to be shot out of the water for sloppily not include including the whole text that was said. Anyone can make a statement if you manipulate what has been said. But you really want to know the truth, don't you?
US did not bid on AA; AA agreed to a merger in which AA remains the largest part of the new company - proportional to the size and value of the two companies going into the merger.
DL didn't choose to bid on AA; they did not say why but it should be pretty obvious that they believe they can obtain what they want that AA has at far lower expense using other methods. They bought half of Virgin Atlantic and a bunch of LHR slots for less than the price of two 777s. DL is also growing their own network using their own employees and by buying used aircraft acquired from other airlines.
As I have said all along, AA/US was fully expected - and that just gave other carriers plenty of opportunity to develop their own strategic plans.
Since the AA/ US merger hasn't even been approved and AA might not be out of BK for six months (which is when the merger will become effective), how about you hold your applause until we see the results.
WN will be within months of being able to fly from DAL to every US domestic airport while DL's equity stake in VS is expected to be approved and a JV put in place.
Your excitement about how well AA/US looks might be tempered by the then-current reality of the industry.
touché, Josh.
The beer should be union-made. Make sure it is domestic beer, though.
Folks this one is really laughable. You can't make this stuff up.
I love this guy:
I love this guy:
- Banned
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Orville Redenbacher, made by IAM members.
WT,
DL did NOT buy slots from VS, they bought out Singapore Airlines' stake in VS.
Nothing more nothing less.
WorldTraveler
Corn Field
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glad we can keep you laughing, mis.
Yes, the expectation as much as Horton wanted to think otherwise was that the creditors would see value in a merger.... it was Parker's merger to lose. AA labor just happened to help convince the creditors that they had billions of dollars at risk by not merging. Mergers have resulted in increased pricing power and reduced capacity - which is all the more puzzling why so many AA/US people seem to think that the creditors are all of a sudden going to change their tune, esp. since most of the creditors to AA/US are also deeply involved elsewhere in the airline industry.
And, yes, AA/US' competitors have had plenty of time to enhance their plans. Your inability to grasp that the rest of the world is not sitting around thinking thru how they can help the AA/US merger take market share is actually rather frightening. You really should spend some time in a real business to understand how competition works.
700,
DL bought SQ's stake and in so doing own just under half of VS' stock as well as have 3 of the 7 seats on VS' board. Given that there are no BK laws in the UK like there are in the US, DL has a very good chance of obtaining key assets in the event VS is unable to continue as a viable concern. It is also possible that DL might swap slots with VS or even take some of VS' slots for itself, including adding service in key markets like LAX on its own metal, as well as to/from SEA where DL has said they intend to add LHR service. IN the meantime, DL has more than enough of a presence at VS to ensure that the company is turned around to the benefit of DL.
Most significant is that VS is now being run by a former AA exec who knows exactly what made AA succeed at LHR - including access to key clients as well as what they wanted/paid - and indirectly also gained access to BA.
Yes, AA and BA hold far more slots - but LHR is the only viable TATL hub for oneworld while DL intends to use AMS and CDG as hubs for the rest of Europe and use VS and DL's own LHR flights to serve the LHR airport. That is exactly what you do in a location where access is limited.
It doesn't matter how many slots AA/BA have to serve Europe because DL doesn't intend to serve all of Europe via LHR.
It is far more significant that DL and VS will have about half of the capacity between the US and LHR as AA/BA has - and that doesn't even include any likely aircraft upgrades that will very likely come in the deal.
The whole point of the VS deal for DL is that it gives DL a much larger presence via a JV in the largest int'l market - NYC-LHR - than DL had on its own and in the process further limits the advantages that AA has in the corporate travel rich NYC market.
That is exactly the type of strategy that other carriers have done in response to AA/US. There will be more to come.
Yes, the expectation as much as Horton wanted to think otherwise was that the creditors would see value in a merger.... it was Parker's merger to lose. AA labor just happened to help convince the creditors that they had billions of dollars at risk by not merging. Mergers have resulted in increased pricing power and reduced capacity - which is all the more puzzling why so many AA/US people seem to think that the creditors are all of a sudden going to change their tune, esp. since most of the creditors to AA/US are also deeply involved elsewhere in the airline industry.
And, yes, AA/US' competitors have had plenty of time to enhance their plans. Your inability to grasp that the rest of the world is not sitting around thinking thru how they can help the AA/US merger take market share is actually rather frightening. You really should spend some time in a real business to understand how competition works.
700,
DL bought SQ's stake and in so doing own just under half of VS' stock as well as have 3 of the 7 seats on VS' board. Given that there are no BK laws in the UK like there are in the US, DL has a very good chance of obtaining key assets in the event VS is unable to continue as a viable concern. It is also possible that DL might swap slots with VS or even take some of VS' slots for itself, including adding service in key markets like LAX on its own metal, as well as to/from SEA where DL has said they intend to add LHR service. IN the meantime, DL has more than enough of a presence at VS to ensure that the company is turned around to the benefit of DL.
Most significant is that VS is now being run by a former AA exec who knows exactly what made AA succeed at LHR - including access to key clients as well as what they wanted/paid - and indirectly also gained access to BA.
Yes, AA and BA hold far more slots - but LHR is the only viable TATL hub for oneworld while DL intends to use AMS and CDG as hubs for the rest of Europe and use VS and DL's own LHR flights to serve the LHR airport. That is exactly what you do in a location where access is limited.
It doesn't matter how many slots AA/BA have to serve Europe because DL doesn't intend to serve all of Europe via LHR.
It is far more significant that DL and VS will have about half of the capacity between the US and LHR as AA/BA has - and that doesn't even include any likely aircraft upgrades that will very likely come in the deal.
The whole point of the VS deal for DL is that it gives DL a much larger presence via a JV in the largest int'l market - NYC-LHR - than DL had on its own and in the process further limits the advantages that AA has in the corporate travel rich NYC market.
That is exactly the type of strategy that other carriers have done in response to AA/US. There will be more to come.
WorldTraveler
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I believe the statement you quote is WRT NYC-LHR. Feel free to quote the entire text, though.
Regulators are not necessary to divest assets in the event of a liquidation.
Regulators must approve DL-VS just as they must approve AA-US in the US.
The chances are far higher that AA-US will end up divesting slots at DCA than that DL will be limited in its ability to enter into a JV with VS which is the intent of the transaction, not to strip them of their assets. The ownership stake and the seats on the board simply ensure that DL's interests are protected. DL has just under half of the ownership of VS and the UK does have shareholder rights laws just like in the US. The notion that DL will be left high and dry in the event that VS is unable to make it is foolhearty.
I hope it doesn't hurt anyone to hear it but AA is in financial trouble as well. That is why they are in BK. We expect AA will turn around. I'm not sure why we should expect VS to be any different.
BTW, let us know the size of AMR's current market cap compared to VS'.
Of course DL/VS poses a viable threat to AA/US and their ability to continue to win key corporate revenue. Note that DL has consistently said that growth of its corporate business in the banking sector is some of the best performing in its corporate account portfolio. Not surprisingly, the banking sector heavily uses NYC-LON and has been very loyal to AA/BA which is precisely why DL has pushed to win that business.
DL is doing a marketing campaign in Canary Wharf as we speak.
Rumors continue that NYC-HKG could be on target for DL; I'm not sure but HKG is one of the key financial centres of the world. IIRC, VS flies LHR-HKG; NYC-HKG on a nonstop basis is the missing link.
thanks for the good discussion, BTW.
Regulators are not necessary to divest assets in the event of a liquidation.
Regulators must approve DL-VS just as they must approve AA-US in the US.
The chances are far higher that AA-US will end up divesting slots at DCA than that DL will be limited in its ability to enter into a JV with VS which is the intent of the transaction, not to strip them of their assets. The ownership stake and the seats on the board simply ensure that DL's interests are protected. DL has just under half of the ownership of VS and the UK does have shareholder rights laws just like in the US. The notion that DL will be left high and dry in the event that VS is unable to make it is foolhearty.
I hope it doesn't hurt anyone to hear it but AA is in financial trouble as well. That is why they are in BK. We expect AA will turn around. I'm not sure why we should expect VS to be any different.
BTW, let us know the size of AMR's current market cap compared to VS'.
Of course DL/VS poses a viable threat to AA/US and their ability to continue to win key corporate revenue. Note that DL has consistently said that growth of its corporate business in the banking sector is some of the best performing in its corporate account portfolio. Not surprisingly, the banking sector heavily uses NYC-LON and has been very loyal to AA/BA which is precisely why DL has pushed to win that business.
DL is doing a marketing campaign in Canary Wharf as we speak.
Rumors continue that NYC-HKG could be on target for DL; I'm not sure but HKG is one of the key financial centres of the world. IIRC, VS flies LHR-HKG; NYC-HKG on a nonstop basis is the missing link.
thanks for the good discussion, BTW.
WorldTraveler
Corn Field
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The reason why stock is usually wiped out in US bankruptcies is because debt is swapped for equity which displaces current equity holders. I don't fully know how UK's insolvency laws work but the US Chapter 11 system is pretty unique in the world.
But again, as much as you want to argue with it, DL owns (or will when all approvals are rec'd which will probably happen as soon as of before AA/US is merged) just under half of VS and will have the #2 position via its JV at LHR, up significantly from where DL is now. More significantly, DL paid a pittance for that position compared to other options and VS now has a top AA former insider running VS, exactly what DL and VS need in order to gain access to much more corporate revenue.
Branson realizes he needs real airline professionals running VS now and he has lined up a very strong team.
BTW, do you realize that the WSJ reported that DL is often the most expensive when it comes to business itineraries in the US in a recent article showing that WN is not usually the lowest priced airline? The significance of course is that DL is using its domestic strength to be able to capture top revenue from business passengers - far higher than other carriers. DL quoted a similar statistic in a recent investor conference presentation. Passengers are paying DL revenue premiums to the industry - including AA - in the domestic marketplace and DL is methodically identifying the markets where DL needs to close the gap internationally in order to do the same thing.
NYC-LON consistently comes up as being the market where DL most needs to grow its presence and represents a structural advantage that AA had until just a few years ago. DL's $300M or so investment in VS allows DL to cut the strategic advantages that AA has had in NYC and in LHR.
Those type of strategic moves are precisely what other carriers are doing in response to AA/US and will continue to do.
But again, as much as you want to argue with it, DL owns (or will when all approvals are rec'd which will probably happen as soon as of before AA/US is merged) just under half of VS and will have the #2 position via its JV at LHR, up significantly from where DL is now. More significantly, DL paid a pittance for that position compared to other options and VS now has a top AA former insider running VS, exactly what DL and VS need in order to gain access to much more corporate revenue.
Branson realizes he needs real airline professionals running VS now and he has lined up a very strong team.
BTW, do you realize that the WSJ reported that DL is often the most expensive when it comes to business itineraries in the US in a recent article showing that WN is not usually the lowest priced airline? The significance of course is that DL is using its domestic strength to be able to capture top revenue from business passengers - far higher than other carriers. DL quoted a similar statistic in a recent investor conference presentation. Passengers are paying DL revenue premiums to the industry - including AA - in the domestic marketplace and DL is methodically identifying the markets where DL needs to close the gap internationally in order to do the same thing.
NYC-LON consistently comes up as being the market where DL most needs to grow its presence and represents a structural advantage that AA had until just a few years ago. DL's $300M or so investment in VS allows DL to cut the strategic advantages that AA has had in NYC and in LHR.
Those type of strategic moves are precisely what other carriers are doing in response to AA/US and will continue to do.
robbedagain
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ua may do ewr hkg run which co used to have not 100% sure and i do think that ua may also do ord to hkg poss sfo or lax to hkg
WorldTraveler
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wings,
you appear really fixated on proving me wrong... so let me say once again that I was indeed wrong that AA would emerge from BK as a standalone. The AMR board clearly decided that was not in their best interest.
But let's also be clear that one of the major factors had to be the continuing labor unrest at AA and the operational problems of last fall which ended AA's string of RASM improvements. US labor had nothing to do with that and its not even clear that Parker's proposal was necessarily better. AA labor made it clear they wanted the current management team out and would rather work for Parker. The creditors couldn't risk that the company would destroyed by labor and Parker has demonstrated an ability to get employees to work for well-below average wage rates while keeping a lid on labor unrest. He has turned US around but US is not generating financial returns at the top of the industry and US wouldn't be doing anywhere near as well as they are if they had to pay higher wages.
It is precisely for that reason that the ability of the new AA to do anywhere close to as well as US is highly suspect given that Parker has agreed to a lot of pay increases in order to win support for the merger - or at least he has promised them.
At the same time, competitors are increasing their attempts to win over AA's best corporate clients in its most lucrative markets - that is why the DL/VS deal matters to AA.
But, yes, I was wrong about AA and US agreeing to merge because I didn't expect AA employees would be willing to sabotage the company's financial performance in order to gain what they wanted. They did, the board decided enough was enough, and it is now up to Parker to make it all work.
yes, robbed, UA does fly EWR-HKG as well as ORD and SFO. While DL is much stronger in Japan, UA is much stronger in China and HKG. After UA bought Pan Am's Pacific routes, they focused a lot of attention on developing China and HKG routes. It has paid very nicely for them.
Cathay also flies JFK-HKG. Add in that NYC-HKG is a long flight in a highly competitive market and it is far from certain that DL will decide it is worth it or necessary to start JFK-HKG.
But his also highlights the difficulty in starting routes to Asia where there are virtually no flights that are under 12 hours except from SEA. You then have double crewed aircraft, 777s or 747s, and you burn lots of fuel. "breaking into Asia" is a whole lot more difficult solely because of the very high costs to operate in the region.
I do believe that the new AA's best chances for East coast to Asia flying is from PHL.
But the same principle that makes AA strong in MIA-Latin America is the same one that makes them weak in LAX and NYC to Asia; the market in the largest cities is divided between several carriers and DL and UA both are far stronger overall to Asia which means they will do well in those cities to Asia. That is also why UA does so much better than AA from ORD to Asia; even if AA and UA are on equal footing domestically, UA's strength overall in Asia makes it far, far harder for AA to succeed in ORD-Asia. AA's best chances to do well in regions where it is weak are from its own fortress hubs. So, for Asia, it is from DFW and PHL, but DfW-Asia is long and what you gain in local traffic, you add in distance. PHL-Asia works just as well for east coast-Asia as DFW-Asia.
The merger will contribute more to int'l growth at PHL to Latin America and Asia.
you appear really fixated on proving me wrong... so let me say once again that I was indeed wrong that AA would emerge from BK as a standalone. The AMR board clearly decided that was not in their best interest.
But let's also be clear that one of the major factors had to be the continuing labor unrest at AA and the operational problems of last fall which ended AA's string of RASM improvements. US labor had nothing to do with that and its not even clear that Parker's proposal was necessarily better. AA labor made it clear they wanted the current management team out and would rather work for Parker. The creditors couldn't risk that the company would destroyed by labor and Parker has demonstrated an ability to get employees to work for well-below average wage rates while keeping a lid on labor unrest. He has turned US around but US is not generating financial returns at the top of the industry and US wouldn't be doing anywhere near as well as they are if they had to pay higher wages.
It is precisely for that reason that the ability of the new AA to do anywhere close to as well as US is highly suspect given that Parker has agreed to a lot of pay increases in order to win support for the merger - or at least he has promised them.
At the same time, competitors are increasing their attempts to win over AA's best corporate clients in its most lucrative markets - that is why the DL/VS deal matters to AA.
But, yes, I was wrong about AA and US agreeing to merge because I didn't expect AA employees would be willing to sabotage the company's financial performance in order to gain what they wanted. They did, the board decided enough was enough, and it is now up to Parker to make it all work.
yes, robbed, UA does fly EWR-HKG as well as ORD and SFO. While DL is much stronger in Japan, UA is much stronger in China and HKG. After UA bought Pan Am's Pacific routes, they focused a lot of attention on developing China and HKG routes. It has paid very nicely for them.
Cathay also flies JFK-HKG. Add in that NYC-HKG is a long flight in a highly competitive market and it is far from certain that DL will decide it is worth it or necessary to start JFK-HKG.
But his also highlights the difficulty in starting routes to Asia where there are virtually no flights that are under 12 hours except from SEA. You then have double crewed aircraft, 777s or 747s, and you burn lots of fuel. "breaking into Asia" is a whole lot more difficult solely because of the very high costs to operate in the region.
I do believe that the new AA's best chances for East coast to Asia flying is from PHL.
But the same principle that makes AA strong in MIA-Latin America is the same one that makes them weak in LAX and NYC to Asia; the market in the largest cities is divided between several carriers and DL and UA both are far stronger overall to Asia which means they will do well in those cities to Asia. That is also why UA does so much better than AA from ORD to Asia; even if AA and UA are on equal footing domestically, UA's strength overall in Asia makes it far, far harder for AA to succeed in ORD-Asia. AA's best chances to do well in regions where it is weak are from its own fortress hubs. So, for Asia, it is from DFW and PHL, but DfW-Asia is long and what you gain in local traffic, you add in distance. PHL-Asia works just as well for east coast-Asia as DFW-Asia.
The merger will contribute more to int'l growth at PHL to Latin America and Asia.
robbedagain
Veteran
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does ua do hawaii to asia and hkg? as for phl to asia.... can a 330 do it nonstop similar to phl tlv? or would the 777 be a bettter aircraft possibly the 787 when it starts to come online again? also as for wages... i would suspect that the new airline would probable be looking to get contracts in place may be with wages in the 23 to 25 an hr range... but who knows
Hawai'i to Asia? I know that DL flies some Japanese tourists between Japan and HNL (as that's the primary market - US business travelers don't fly to Asia via HNL). Dunno the extent of UA's Asian beach market.
A330 to Asia from PHL? When Parker bid for the rights for PHL-PEK, the application said that US would procure two used A340s, as the A330s lacked the range. From PHL to Japan or China, the 777 is the appropriate plane, and, like every other long-haul route, the 787 will likely be a good fit.
New AA will have 16 new 77Ws by the end of 2014 (four of them have already been delivered since late last year), so there's no shortage of 777s for new long-haul routes. The new US A330s will probably serve as replacements for US' old 762s.
WorldTraveler
Corn Field
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The three largest players in the Asia-Japan market (and it is almost entirely Asia and specifically Japan originating) are Delta followed closely by JAL and then Hawaiian each with 20-25%¨of the market. Korean and China Air Lines are both in there and Hawaiian has done a good job of divesifying the market away from Japan. UA has about 5% of the market; NH isn't much further ahead.
FWIW, DL's average fares from Japan to Hawaii are higher than from the US to S. America by any US carrier even the flights are about the same length. It is also very hard to find open seats in business class on those flights. Tourism from Japan does not at all mean cheap flights.
The newest 330s are supposed to have the range to do the US NE to NE Asia but Í'm not sure it is necessary to use that plane since there are 777s that are well-suited for such 14-15 hour flights as FWAAA noted.
Not sure what workgroup you are referring to with those wage rates but the new AA will have higher wage rates or upset labor... that was the promise that Parker made in order to get labor behind the merger.
Given that US' labor rates on average are well behind AA's today for several key workgroups and AA labor is expecting faster recovery from their BK contracts, the new AA's labor costs will grow much faster than at other airlines which will make it harder to justify some growth that AA thought they could have done based on rates they envisioned earlier in their BK.
FWIW, DL's average fares from Japan to Hawaii are higher than from the US to S. America by any US carrier even the flights are about the same length. It is also very hard to find open seats in business class on those flights. Tourism from Japan does not at all mean cheap flights.
The newest 330s are supposed to have the range to do the US NE to NE Asia but Í'm not sure it is necessary to use that plane since there are 777s that are well-suited for such 14-15 hour flights as FWAAA noted.
Not sure what workgroup you are referring to with those wage rates but the new AA will have higher wage rates or upset labor... that was the promise that Parker made in order to get labor behind the merger.
Given that US' labor rates on average are well behind AA's today for several key workgroups and AA labor is expecting faster recovery from their BK contracts, the new AA's labor costs will grow much faster than at other airlines which will make it harder to justify some growth that AA thought they could have done based on rates they envisioned earlier in their BK.
