Today's Proposed Merger Thoughts

[EastUS1]

Airline mergers have nothing to do with making a stronger company, and they are for sure not about helping the employees, or providing better service to the customers. They are about 1 thing....making a crap load of money for a few top managers and investors.

Bob

Indeed. To even imagine otherwise is a fool's errand in extremis.

 

[USA320Pilot]

And, one other important point is the Judge Koller-Kotelly has a reputation of encourage the parties to settle, if possible, which I believe is another reason or view that points to a settlement.

 

[robbedagain]

usa320 do you think that if us/aa gives up 10 slots of the mainline and a chunk of the express slots whereas carriers like swa and jb may be even a canadian carrier like west jet plus holding off on price increases.. or may be keeping the advantage fares. would that be what the doj wants in order to pass the merger....

 

[USA320Pilot]

usa320 do you think that if us/aa gives up 10 slots of the mainline and a chunk of the express slots whereas carriers like swa and jb may be even a canadian carrier like west jet plus holding off on price increases.. or may be keeping the advantage fares. would that be what the doj wants in order to pass the merger....

Robbedagain,

Generally speaking, "yes." I have no knowledge of the DOJ's ideas on an agreeable settlement, but they will probably want both structural and behavioral remedies based on the Justice Department's complaint. Interestingly, the DOJ has indicated it will amend its complaint by Friday, September 6th. We will have a better idea of the DOJ's true intent after their new filing is made public.

It is my understanding US Airways currently operates approximately 230 peak-day departures at National. I'm not sure about AA, but the Texas-based company may have about 30 to 40 (this is a guess). Therefore, maybe the DOJ's target might be a 10% slot reduction of the combined slot assets that AA and US Airways currently operate. Hopefully it's a lower number.

The New American could be allowed to sell the slots to whatever airline they desire. Previously, US Airways sold 8 slots to JetBlue for $40 million or $5 million a slot. Based on their interest in obtaining DCA slots during the initial Delta-US Airways review WestJet could be a bidder again and I suspect Delta, JetBlue, and Southwest would want to acquire DCA slots too.

I don't know what behavioral remedies would be included in an acceptable settlement agreement. You're right they could be maintaining Advantage Fares, not raising bag fees, maintaining service to all current DCA markets to satisfy congressional desire, not raising FTP redemption fees, no increase in Choice Seats, no fare increases, etc. for a period of time are probably all on the table.

The issue is can the parties reach a settlement that both can live with? I believe there is a deal out there because the risk is too high for either party in court.

The good news is that the DOJ has won only one antitrust lawsuit in nearly a decade.

 

[USA320Pilot]

Bob Crandall distilled what this proposed merger is all about. "Animal spirits being what they are, three big tough guys will rough each other up more frequently than only two big tough guys. That’s the argument for the merger in its simplest form – and I think it is right," Crandall said.

 

[traderjake]

Parker, if he hasn't realized it yet, will come to the realization that there really are differences between the AA/US mergers and the ones that did get approved.

True, this one doesn't benefit Delta.

 

[robbedagain]

usa320 i think a 10% slot sell or lease type of thing could be very beneficial.. you said something interesting.. the doj is amending its argument come friday.. is there a link to be had that would have an article about that.. that alone is going to be very interesting to see how they amend it...

 

[767one]

320pilot,
if it helps you feel better thinking the DOJ is just picking on AA/US, go ahead and keep telling yourself that.

Parker, if he hasn't realized it yet, will come to the realization that there really are differences between the AA/US mergers and the ones that did get approved.

It might make it easier for you to accept what ultimately happens if you accept that the DOJ really does have a case. Multiple people have been highlighting what is really involved since the DOJ filed suit.

Now that the "shock" of the DOJ's pronouncement has worn off, it's time to start dealing in the reality that is.... and it isn't necessarily pretty or something that can easily be swept out the door.

There also is a real good chance that the concessions might be a lot more severe than you think, either in size or in impact to the post-merger company.

I think there are no limits to what USAirways management will do it order to make the merger work. DP needs to have the merger go through mainly for his ego but also because he will make a bundle of money. If the concessions are deep enough to make the merged company less able to compete with the larger carriers he will get a extra bonus.....he will go to the employees with a sad (fake) look on his face and explain how he needs extreme concessions in order for the company to survive. He will of course say it is not his fault but rather the nasty government's fault. My guess is that he and his team will not need to make any concessions because you have to pay your "talent" well!
I hope this time the employees tell him and his "team" to pound salt.

Happy labor day!

Bob

 

[usa1]

Robert Crandall on the merger


http://aviationblog.dallasnews.com/2013/09/robert-crandall-on-the-merger-i-dont-get-this-notion-that-either-consumers-or-the-government-can-or-should-trust-that-companies-will-compete-away-profits-even-if-competition-does-not.html/

 

[WorldTraveler]

Bob Crandall distilled what this proposed merger is all about. "Animal spirits being what they are, three big tough guys will rough each other up more frequently than only two big tough guys. That’s the argument for the merger in its simplest form – and I think it is right," Crandall said.

except that there really is no more evidence that 3 large competitors generate more competition than 2 but it sounds mean and tough.

Crandall does have a dog in this fight.

320pilot,

Yes, the judge wants mediation and compromise. The US and most western legal systems rarely use punishment with no chance of rehabilitation. The DOJ has specific reasons they are against this merger and those can be addressed; when you accept the real issues that the DOJ has and admit they aren’t the same as with other mergers, then there can be an opportunity to address those deficiencies.

10 slots equates to about a 1.5% share of flights. US is facing issues w/ the sheer size of DCA ops relative to other carriers plus lack of nationwide competition. US has far less low fare competition at DCA than at other hubs.

There are currently about 40 flights/day by low fare carriers at DCA – most to BOS or Florida/SJU. Only 13 are to hubs/large operations that are large enough to provide access to the majority of the US.

Parker’s comments about US using X% of slots but a much lower percentage of seats doesn’t sit well with legislators. They want to see DCA’s limited slots generate the most amount of seats to keep prices down PLUS satisfy all of those unique political concerns that are what DCA is all about. US operates a number of markets from DCA with 50 seat RJs that have 3 or more flights/day. Given that it is very unlikely that any other carrier would serve most of those markets, US could easily offer a competitive schedule with one less flight on a larger RJ.

The notion that US can’t give up slots and still serve as many markets or as many seats as possible is simply not accurate; remember DL took 125 slot pairs per day and added 4 million seats per year to LGA even though many of the new markets are still on RJs, albeit large RJs.

Many of the markets have a large gov’t-military component on the other end of the route which explains a lot about why the US gov’t doesn’t want to see a single carrier dominate DCA so much that there is no way a competitor can realistically challenge US’ fares. DCA IS the airport to the nation’s capital.

US serves about 10 cities with only 1 or 2 flights/day for a total of 15 flights/day on an RJ which means the primary purpose for the flight is to serve political interests. They just don’t carry enough passengers on those flights to really make a difference to their DCA hub. US could let those slots go to another carrier with stipulations that the service remain and the effect on US from a pricing and network standpoint would be minimal.

Those slots have political but no real monetary value which means US would essentially be giving them up and getting nothing in return which is part of why they are so opposed to the idea. The other part is that DL – who gave them many of the slots as part of the slot deal – could end up with many of those slots again, at no cost but with greater exposure in Washington.

Yet if WN operated at DCA using a similar number of slots, they could add 3X as many seats and satisfy the need to see more increased service and would also could add enough service to create a true nationwide lower fare competitor at DCA (to the extent that WN will be a lower fare competitor, which as I have noted, they will continue to push their fares up as much as possible).

While it is a risky to predict what it will take to solve the DCA part of the merger, it is doubtful that there is a need to divest a whole lot more than about a dozen slot pairs going to a low fare carrier that will add true nationwide service and not just Florida or BOS service (which is why B6 is at a disadvantage) and about half involving small city slots that would go to another network carrier.

US could easily divest as many as 25 more slots involving small cities (whether the slots themselves are regional carrier slots) and have minimal effect on their hub. The DOJ could force slot divestitures equal to the entire size of AA’s slot portfolio but the chances are real high that they could satisfy DOT concerns with less than that amount.

The option is to retain the small city slots and end up divesting even more slots that could be used for large jet service. If US had to divest even 18 slots like UA did at EWR, the impact on the hub would be much, much larger.

The behavioural remedies are even harder to predict but don’t underestimate the enormous competitive impact any of those remedies could have on US and their ability to generate the revenues necessary to get benefits from the merger – if not pay for it. New AA’s competitors will absolutely take advantage of the limitations that are put on new AA and the cost of that shouldn’t be underestimated.

 

[flyer63]

So what was the point of selling LGA slots and increasing size at DCA. That seems to be a stupid move?. . I think the lawmakers ie senators are the key to how much we give up. I see the NH contingent and talked to them on the flight home the other day. They want more service to MHT not less. Again they are not happy and plan to be involved.

 

[WorldTraveler]

of course everyone wants more service to their city - and the lowest prices too. But US could reduce 1 flt/day DCA-MHT, upgrade to larger aircraft, offer the same number of seats and still be able to say they are meeting their obligations to use the slots they have at DCA most effectively.
Parker is doing the same thing at DCA that he did at LGA which was sit on slots - and eventually the market will dictate that there are more efficient ways to use those public assets. IN this case, the merger is forcing the discussion.

US didn't do the slot deal based on a merger down the road.... if they had, they would have structured it differently... or maybe not have done it all.
DL did the slot deal based on getting a size at LGA that would put them out in front of the pack with no real way anyone could catch them. US boxed itself in at DCA with the maximum amount of slots they could have at DCA even though Parker has talked for years about needing to grow thru a merger. He clearly didn't see far enough down the road to realize he couldn't max out US' size at DCA and still grow thru a merger later on.

AA and DL are about the same size at DCA today - and each about 1/4 the size of US. It is precisely because of the huge size difference between AA, DL, and US and the fact that the low fare carriers are so much smaller - esp. those with any meaningful influence on nationwide pricing - that there will have to be enough divestitures to really make a difference in the pricing environment.

Add in all the political aspects of serving DCA including routes that wouldn't otherwise justify service, and there is no doubt that new AA will be far less than the sum of the two parts today.

 

[flyer63]

of course everyone wants more service to their city - and the lowest prices too. But US could reduce 1 flt/day DCA-MHT, upgrade to larger aircraft, offer the same number of seats and still be able to say they are meeting their obligations to use the slots they have at DCA most effectively.
Parker is doing the same thing at DCA that he did at LGA which was sit on slots - and eventually the market will dictate that there are more efficient ways to use those public assets. IN this case, the merger is forcing the discussion.

US didn't do the slot deal based on a merger down the road.... if they had, they would have structured it differently... or maybe not have done it all.
DL did the slot deal based on getting a size at LGA that would put them out in front of the pack with no real way anyone could catch them. US boxed itself in at DCA with the maximum amount of slots they could have at DCA even though Parker has talked for years about needing to grow thru a merger. He clearly didn't see far enough down the road to realize he couldn't max out US' size at DCA and still grow thru a merger later on.

AA and DL are about the same size at DCA today - and each about 1/4 the size of US. It is precisely because of the huge size difference between AA, DL, and US and the fact that the low fare carriers are so much smaller - esp. those with any meaningful influence on nationwide pricing - that there will have to be enough divestitures to really make a difference in the pricing environment.

Add in all the political aspects of serving DCA including routes that wouldn't otherwise justify service, and there is no doubt that new AA will be far less than the sum of the two parts today.

I really don't think a 190 at 6am and a 190 at 5pm is effective service to MHT or any of the small cities, you need at a minimum 3 flights per day and a huge slot give up will not allow 3 flights per day. I don't think you get the influence of a democratic senator like Shaheen . Obama won't like it when he goes against her when he needs something. In talking she clearly gets it

 

[nycbusdriver]

usa320 i think a 10% slot sell or lease type of thing could be very beneficial.. you said something interesting.. the doj is amending its argument come friday.. is there a link to be had that would have an article about that.. that alone is going to be very interesting to see how they amend it...

I find it interesting how quickly the DOJ backed off its original demand that the merger not take place under any circumstances, and that they saw no amount of concessions possible to make the deal happen.

Suddenly now, they are open to a settlement. As Church Lady likes to say: "How conveeeeeenient!"

 

[nycbusdriver]

Again they are not happy and plan to be involved.

After all, it IS all about them, isn't it?

They should have precluded this whole mess by amending the Deregulation Act of 1978 to guarantee service and (government-subsidized) profits to smaller city routes that a true free market would let dry up.

The DOJ is simply re-regulating the airline industry to satisfy its whim.