Network implications of an AA and US merger

[ContUNITEus]

Anna seems to have a hard time differentiating between AA and AE. If her headings had said AMR (the whole corporation), she would have been more accurate.

The following routes quoted by her are ALL served by American Eagle exclusively from an AMR perspective:

DCA-CLT
LGA-CLT
DCA-RDU
MIA-CLT
(And their return flights, of course.)

So, at least 3 of her 6 "monopoly routes" are US competing against American Eagle, not American Airlines. AMR's desire to shed itself of AE is not exactly a corporate secret. They just haven't found a rich enough guy just yet whose overblown ego makes him desperate enough to buy an airline.

What does it matter whether it's American Eagle or not? The revenue is streaming mainly towards AA and the flights are marketed as AA.

 

[BoeingBoy]

What does it matter whether it's American Eagle or not? The revenue is streaming mainly towards AA and the flights are marketed as AA.

In one sense you're right. However, by focusing on seats the data is skewed by a couple of problems that AA is trying to fix in bankruptcy - scope and productivity. Eagle has about 70 70-seat RJ's while US, with a much smaller market share has 110 70-seat and larger RJ's. Plus US has much better productivity, flying the same flights/block hours with a lot fewer crews or using the same number of crews to fly significantly more flights/block hours. If there's a merger, US would be the beneficiary of the changes AA wants to make, which could affect the seats in those airports or add more airports to that list.

Jim

 

[jimntx]

What does it matter whether it's American Eagle or not? The revenue is streaming mainly towards AA and the flights are marketed as AA.

If you don't see a difference between flying in an rj or a mainline a/c, I can't help you. I know if I had a choice between flying AE and any other airline's mainline a/c, AE would lose. I fly rjs only when I have no other choice. Most passengers will tell you the same. I know that the larger, 70-100 seat Embraers, such as US has, are more comfortable a/c. AE has only 70 70-seaters, and nothing larger. The great majority of AE's fleet are 40-50 seaters.

The revenue streams to AMR, the parent company, not to AA. We might have better financial results on mainline if we could get the AE revenue (without the AE expenses, of course). And, if you will look at AA.com, for such flights as XNA-ORD, you will see that it states very clearly that the flight is operated by American Eagle.

 

[FWAAA]

Anna seems to have a hard time differentiating between AA and AE. If her headings had said AMR (the whole corporation), she would have been more accurate.

<snip>

So, at least 3 of her 6 "monopoly routes" are US competing against American Eagle, not American Airlines. AMR's desire to shed itself of AE is not exactly a corporate secret. They just haven't found a rich enough guy just yet whose overblown ego makes him desperate enough to buy an airline.

From an antitrust perspective, it matters not whether the flights are American Airlines mainline or American Eagle flown for AA. For purposes of antitrust analysis, mainline or Eagle makes no difference. Eagle does not constitute a separate competitor - its flying is contracted to AA via capacity purchase agreements.

If you don't see a difference between flying in an rj or a mainline a/c, I can't help you. I know if I had a choice between flying AE and any other airline's mainline a/c, AE would lose. I fly rjs only when I have no other choice. Most passengers will tell you the same. I know that the larger, 70-100 seat Embraers, such as US has, are more comfortable a/c. AE has only 70 70-seaters, and nothing larger. The great majority of AE's fleet are 40-50 seaters.

Yes, there's a comfort difference between mainline and Eagle. There is no distinction when analyzing the competitive implications of a combination between US and AA. US includes all of its regional flights (and there are many) and AA includes all of its Eagle and American Connection (Chautauqua - Republic) regional flights.

Eagle has just 47 of the CRJ-700s, not 70. Hopefully, AA's bankruptcy will result in relaxed scope provisions with pilots and TWU so that AA can contract to fly many more 70-90 seaters, just like at US, UA and DL.

The revenue streams to AMR, the parent company, not to AA. We might have better financial results on mainline if we could get the AE revenue (without the AE expenses, of course). And, if you will look at AA.com, for such flights as XNA-ORD, you will see that it states very clearly that the flight is operated by American Eagle.

That's factually and legally incorrect (the bolded part). Eagle's flights are operated under capacity purchase agreements with AA mainline. All revenue from Eagle flights is received by American Airlines.

Eagle is a wholly owned subsidiary of AMR Eagle, which itself is a subsidiary of AMR, but American Airlines handles the revenue from all Eagle flights, contrary to your incorrect posting above.

 

[USFlyer]

FWAAA is correct. Regional carriers operating under contract with a mainline carrier -- especially in the cases where the mainline carrier handles all sales, marketing and scheduling -- are in essence doing a subset of flying for the mainline carrier. It's in effect a standard subcontracting arranagement used in many industries. Passenger contracts with Carrier A for transport from Point X to Point Y. The fact Carrier A chooses to subcontract some or all of the flying to Carrier B doesn't change the fact the passenger has a contract with Carrier A.

 

[ClueByFour]

(All this being said, I still have an issue with the Government managing slots like this. If an airline, through mergers and acquisitions, is able to build up a sizable operation, it should be allowed to keep the operation. WN can buy B6 if it wants more slots, for example. There's no need for the Government to choose the winners and losers.)

There is no fair way to get from where we are today at, say, DCA to having the government out of the way, save setting a slot ceiling and proceeding to reclaim and auction off every single slot. That would not work out well for US.

I don't favor having the government pick winners for 50 years (like they have at DCA) and then toss open the doors. It's not a free market at that point where the incumbents (who got their controlled slots from the government) have everything.

 

[USFlyer]

There is no fair way to get from where we are today at, say, DCA to having the government out of the way, save setting a slot ceiling and proceeding to reclaim and auction off every single slot. That would not work out well for US.

I don't favor having the government pick winners for 50 years (like they have at DCA) and then toss open the doors. It's not a free market at that point where the incumbents (who got their controlled slots from the government) have everything.

Agreed, which is why the Government shouldn't be involved in the first place. Unraveling things once the Government is involved is near impossible.

Anyway, I guess we'll see what happens should a merger be announced. None of us is really privy to the analyses the DOT undergoes, so we're all guessing at this point.

 

[gabby]

Personally I'd rather be on a RJ for any flight less than 2 hours. Getting a middle seat (737) can be a horrible experience. Even going from CLT to DCA. Plus as a traveling crewmembers I have my 4 days worth of clothes. Flight case. And a small lunch kit. What a pain in the butt trying to find overhead space. I'd rather just valet it and grab it when I get off the airplane. Now that all US regional jets (Over 70 seats) have first class it is even better. The 700/900's are true airliners capable of 41,000'. I hope eagle/psa or US/AA gets more of them.

 

[jimntx]

I hope eagle/psa or US/AA gets more of them.

That's one of the sticking points in the APA's current contract, and from what I hear a sticking point in the negotiations for a new contract. AE is allowed to have 70 70-seaters--no more--which they already have. The larger 90 and 100 seat a/c are not allowed at all. I may be wrong, but I think I heard that APA wants the larger rj's (90-100 seats) flown on mainline, but at mainline pay rates. And, IIRC, the pay rates they want are the same as current MD-80 rates. A 90-100 seat a/c probably can not be profitable at 140-seat a/c rates.

 

[PullUp]

A 90-100 seat a/c probably can not be profitable at 140-seat a/c rates.

So, how does JetBlue do it with their 190's?

 

[jimntx]

That's interesting. Do you know for a fact that JB pays AA MD-80 rates for their large rj? And, are those mainline rates paid to f/as also? You don't think AA's f/as would stand for working a 100-seater for less money if the pilots were paid MD-80 rates, do you?

 

[700UW]

B6 Pay rates

 

[FWAAA]

That's one of the sticking points in the APA's current contract, and from what I hear a sticking point in the negotiations for a new contract. AE is allowed to have 70 70-seaters--no more--which they already have. The larger 90 and 100 seat a/c are not allowed at all. I may be wrong, but I think I heard that APA wants the larger rj's (90-100 seats) flown on mainline, but at mainline pay rates. And, IIRC, the pay rates they want are the same as current MD-80 rates. A 90-100 seat a/c probably can not be profitable at 140-seat a/c rates.

AA is permitted to fly a total of 47 jets with more than 50 seats - the 70 seaters - and 47 is all Eagle flies. Not 70. If the current contract permitted 70, then Eagle would fly 70 of them.

AA is proposing that Eagle (or another commuter carrier under contract to AA) be permitted to fly more than 200 large RJs as long as they have fewer than 89 seats. 89 seats and larger would be mainline under AA's proposal (at much lower rates, of course).

Last year, AA offered the APA a deal where all new 70 seaters would be flown by AA mainline at new, lower rates.

 

[BoeingBoy]

Last year, AA offered the APA a deal where all new 70 seaters would be flown by AA mainline at new, lower rates.

Those pay rates are always the sticking point aren't they...

It would seem to me that with AA in bankruptcy, the days of higher benefit costs making RJ flying by mainline pilots more expensive are gone. Even on pay scales, US (east) is flying the 737/A320 family at the same or not much higher pay than RJ operators but they're the exception (although the relationship of capt to fo rates at RJ operators is still largely out of whack with mainline). There seems to be two or three factors still at work - the "I'll fly a C172 if it pays $200K/year" thinking which prevents competitive pay rates at mainline, the many years of mainline pilots letting their ego get in the way (who wants to fly those little things, let Brand X do it) which was prevalent in the early RJ days and now with the big RJ's the camel is inside the tent, and perhaps a desire to play one group of pilots against another by some (most/all??) managements.

I guess I was spoiled by my time at PI. With the F28 (a medium sized RJ in today's world) scope prevented flying them at "commuter" carriers so management just made the offer of "We'll get them and you'll fly them if we can agree on a competitive pay rate" - nothing else in the contract changed - so the union and pilots agreed to that competitive pay rate. Win-win - the company got their smaller jet equipment and the pilots had more jobs. But management and pilots working together to both win seems to be a rarity among airlines...

Jim

 

[jimntx]

700, Thanks for the link. Didn't know such a site existed. According to the website, JB EMB pilots make $142.83/hr. AA MD-80 pilots make $161/hr. So, almost a $20/hr difference. That adds up over a whole day of flying.

Assuming that the average a/c is in use 10-12 hours/day, that is over $200/airplane more than JB everyday.