World,
Give it a rest will you? While you've made some valid points, you're just cheerleading for Horton and company while they continue to alienate and stick it to their employees beyond what is necessary while offering little in any sort of a plan that has been respected by Wall Street.
Read this and get back to us:
http://app5.websitetonight.com/projects/6/1/3/6/613675/uploads/American_and_US_Airways_ver_1.pdf
Let me translate for you:
“Don’t come on here with facts that shoot down our little plan…”
I’ve heard the same thing for years on here, yet I still keep going and have a pretty strong track record for demonstrating where the airline is going and what works and doesn’t work.
Specifically, a lot of the people, including on this forum, with whom I butted heads with for years were AA mgmt supporters, shall we say, who didn’t like the fact that I very frequently said that AA HAD to fix its problems or it would end up in BK. AA didn’t fix its problems and we are where we are now – and a happy outcome for all involved is far from certain.
Where I now find myself is now standing with many of the same AA mgmt supporters – because we both recognize that AA’s huge problems have to be addressed with real solutions – and cutting short the process of fixing AA to buy labor peace will only doom the future of AA – regardless of whether as a standalone or combined with any other airline – unless the problems are fixed and fixed right.
AA is where it is because it didn’t fully address its problems 10 years ago and then didn’t use the advantage it did gain. Neither AA as a company can afford to settle for half of a solution again – the result of not fixing the problem is way too obvious – and cannot be repeated.
….
Now as to the document you cited,
WARNING - this response is not a 5 word simple response. If you don’t want to read DETAILED reasons why US’ proposal doesn’t work, hit the back button… but don’t complain or berate me if you think it is too long.
1. The author jumped right on the bandwagon to validate that his prediction that AA would not emerge as a standalone is true… so not surprising that he still doesn’t want to believe that they can – and is happy to see US try to move a step closer. Let’s face it – none of us are bystanders w/o an opinion – I don’t know his biases – but anyone can crank out reasons to justify any position.
2. He says a couple things right off the bat that the creditors will certainly pick up on and so should anyone else that wants to intelligently evaluate US’ proposal.
- He acknowledges that AA has pretty well ceded its position in NYC to DL and UA. (NYC is absolutely critical in the future of the industry because it is the largest travel market in the country and has the highest amount of premium/contract traffic. AA was the largest carrier for years. Now, AA is #3 behind UA and DL – UA tapped into CO’s presence at EWR and combined it with UA’s at LGA and JFK which even though wasn’t large still covered the top business markets. DL already grew about 50% larger than AA and is now directly competitive with AA at LGA and JFK in almost all of the markets where AA previously had an advantage. US gave up any hops of being anything in NYC by getting rid of over 100 slot pairs per day – in exchange for gaining less than half that amount at DCA.) The combined AA-US in NYC will still be #3 in NYC.
- He also acknowledges that DL and UA will still be larger than AA/US to Europe including to continental Europe which is far larger than to LHR – and UA/CO now has a presence at LHR as large as AA has on its own metal. AA does not have any of its previous advantages in Europe anymore.
- He acknowledges that AA will have virtually no presence in Asia/Pacific and US can add nothing to it.
- He notes that AA now has and will continue to be the largest carrier in Latin America.
- Domestically, he notes that AA and US are strong in different regions of the eastern part of the US.
.
Now my discussion –
1. Revenue
Parker has thrown about revenue synergy numbers as the reason for justifying the validity of the merger… every merger SHOULD have them and AA/US would likely produce some.
YET –
DL and UA both gained their revenue synergies by combining the dominant position of one partner with the dominant position of another carrier in key regions… ie NW was already the largest US carrier to Japan, DL was in the eastern US – combined the two are stronger than before. CO was strong in NYC while UA was strong from ORD and California… together they are stronger in the key business regions… etc. UA became the dominant carrier in NYC and moved up from #4 in Latin America to #2 via CO’s strengths… DL moved from distant #3 to #2 in the Pacific, #1 in the Midwest.
AA/US will NOT be the dominant carrier in ANY region that either one of them is not dominant in right now and their relative positions won’t change. All the merger will do is strengthen AA where AA is already strong (Latin America) but US is NOT the dominant carrier on the east coast in any region and AA won’t change that. AA and US both are the strongest carriers in their HUBS – except for ORD – but revenue synergies come from creating a stronger position where neither had them before.
AA/US only combines AA and US’ weak positions IN DIFFERENT PARTS of the east coast – but doesn’t create a size necessary to be #1 or a very close tie for #1 – which is what DL and UA did with their mergers.
So, let’s look at Latin America where AA DOES have a distinct size advantage. Yet within a couple years, the US will have Open Skies in every key market – the ones where AA has had an advantage because of size gained from its Eastern Latin America acquisition and the subsequent growth…. But in a couple years, other carriers will be able to move into those markets, just as they have done in LHR where the new entrants – at the time CO, DL, NW, and US – gained slots equal to the size of what AA had at LHR before Open Skies occurred.
Latin America is also the smallest global region.
So, the revenue synergies that have been promised come from a relative position much smaller than what DL and UA gained in their mergers – and the one region where AA is dominant and would remain so through the merger (if it happened before Open Skies in Brazil/Colombia etc) would be immediately challenged by new entrants who would be able to add flights including in new markets such as MIA-Latin America. History shows that even though AA had the same advantage in NYC-London and partnered with BA, it still lost a huge amount of market share to its DL and UA who now offer NYC-LHR in corporate contracts, taking away the advantage AA once had.
Domestically, AA/US still has to compete with low fare carriers including WN who has a huge opportunity to grow its presence in Dallas as well as up and down the east coast.
The assumption is made by many that AA/US could codeshare with B6 and AS – yet it is all but certain that one will be bought by a competitor in an attempt to beef up their presence – and it is also very possible that AS or B6 might choose not to codeshare with AA/US based on the additional competition AA/US would create to their AS or B6’s own networks.
AA-US would not create the size necessary to compete effectively with DL and UA either on a nationwide basis or in the international arena.
The revenue synergies that Parker proposes AA/US would have are highly suspect.
…
So, the assumption is always made that AA is better off merging with someone –anyone – to gain enough size to compete – but that is not likely to be the case at all.
2. Cost… and the biggest reason why a merger might hurt AA long-term more than help is because a merger such as US is proposing comes by reducing a huge amount of the labor cost cuts that are necessary for AA to compete even as a smaller airline.
AA ‘s standalone plan contains deep cuts –about a $1 billion from labor - but they position AA such that they could compete even as a standalone – with costs comparable to DL’s and not far from where WN will be – and lower than UA’s. By wiping out half or more of the cuts that AA is proposing, AA would be far less capable of competing against DL or WN – its key lower cost competitors today – and would not have the size of the advantage relative to UA that it needs.
There is no way that US can say they will save 6000 jobs and increase salaries without dramatically increasing the costs that AA previously proposed – and in increasing the costs, also decreasing the combined airline’s ability to compete.
And remember that as FWAAA has noted many times, AA salaries are much higher than US’ – so either Parker keeps all three – or two depending on the workgroup – separate – or pays a very high price to obtain labor peace. That is exactly the problem UA is facing with its merger with CO – and it has yet to resolve it.
Just for contrast, DL has no labor premium left to pay for its merger – and AA people would be on par pay wise or receive pay raises. WN is paying for labor integration at FL – but it is also very rapidly redeploying FL’s assets to obtain revenues high enough to support the WN labor costs.
Remember that US does not have much if any cost advantage over DL who obtains far superior revenue to US all over the east coast other than in US hubs. Parker is proposing doing for AA/US what hasn’t worked for US alone – costs not low enough with revenues not strong enough.
Which brings us to:
3. Value US gives to the creditors
Remember that Parker said he would make the creditors whole in the DL takeover case – but the creditors decided to pursue a DL standalone plan. There remains no assurance that AMR’s creditors will believe a US takeover is in their best interests – and could very well decide that AMR’s standalone plan would be superior – and there is an even greater likelihood that another party – including DL could offer a superior proposal to US’ proposal.
…
US’ proposal likely won’t deliver the revenue premium Parker believes he can get and which DL and UA got from their mergers.
US’ proposal eliminates a lot of the cost cuts that AA mgmt proposed – and puts the combined airline at severe risk of not having low enough costs to effectively compete against larger and lower cost competitors.
In short, Parker is proposing the same formula he has used without viable long term success with US.
And finally it is quite likely that the creditors will realize the huge flaws that exist in Parker’s plan and will choose to continue with AMR’s standalone plan – or if forced to listen to alternatives to AMR’s standalone plan – will end up choosing another proposal that provides a better return and lower risk than what US proposes.
And AA labor may well decide that one of the competing plans are better than US.. but more likely is that AA will proceed with the 1113 process and AA labor will not be in a position to be bribed by reductions in job cuts – which is the primary motivation they have in supporting US’ proposal.
.
In other words, a AA-US merger is far from “in the bag”
