Yes, I well remember those predictions and I don’t think I endorsed them as being terribly realistic in light of what other carriers have done. However, remember that my criticism of AA for years has been that they have kept capacity in the market which has eliminated the possibility to increase RASM and more closely match revenue with costs.
AA, as you well noted, gained an industry advantage in RASM growth several months into their BK, only to be interrupted by the operational problems of the late 2nd and early 3rd quarters. Since then, AA has had industry average RASM and has been surpassed by you know who. AA’s original plan to grow capacity by 20% seemed unrealistic, something we talked much about here. Increasing capacity in an environment of escalating costs – most notably fuel – and overall industry capacity cuts made it clear that the creditors would not accept AA’s overall plan, esp. in light of the fact that AA has yet to reach the industry lowest industry CASM that it said would allow it to grow. With the merger and all of the pay raises that are being thrown around to support, AA’s costs will likely never reach the level of being industry lowest.
I have no idea how much capacity AA/US will ultimately pull from the market but the expectations of the creditors in every other BK has been that capacity would be cut in order to push pricing up. Although US has been one of the few network carriers that has been growing capacity, even at a very small percent based on its very low labor costs, it is highly unlikely that they can avoid following the formula of reducing capacity in order to push up revenues, the only way to pay for the increased costs that will be part of the formula. Since execs of both DL and UA have said they support the merger on the grounds of decreased industry capacity, it is fairly certain that the creditors are indeed requiring that there be significant amounts of capacity to come out of the combined AA/US system. We can debate where that will come but I am pretty confident that those people who have boasted about how large AA/US would based on simple addition of its current capacity will find that they are wrong Further, the massive layoffs and hub closures that have been part of consolidation in the industry will take place at AA/US as well. Add in that if the capacity cuts hit PHX hardest as some have predicted, it would weaken many of the advantages of the merger in the western US and disproportionately help competitors who have stronger positions in the west, including DL, UA, and WN.
