US Airways Shares Slip Despite Merger Chance, Strong Demand

[BoeingBoy]

I think the point the analyst was trying to make is AA has been focusing on those five cities for many years, not just since 9/2009.

And added that "we" don't see it working going forward. Yet US is doing the same thing, just not at "cornerstones"...

Jim

 

[FWAAA]

I think the point the analyst was trying to make is AA has been focusing on those five cities for many years, not just since 9/2009.

Perhaps, but that's not exactly what she said. Yes, AA has focused on those five cities for many, many years. In some of those years, AA earned well over a billion dollars of annual profit on revenues 40% less than 2011 revenues.

Helane Becker used a term of art, "cornerstone strategy" and even correctly defined the strategy, which was announced by AA in September, 2009, and then she went on to announce that it has not worked for the past five years (despite existing for just 30 months). The cornerstone strategy involved retiring 34 AB6s (a widebody retirement in 2008-09 in numbers that dwarfs US' current total widebody fleet) along with a de-emphasis of BOS, SJU, SJC and STL.

If you want to go back five years, we'll see that AA earned an annual profit of more than $700 million five years ago in 2007. Since then, AA's much higher labor costs plus the hobbling scope provisions of the pilot agreement have been magnified as UA and DL have merged and capitalized on their larger networks, lower labor costs and more flexible contracts.

Evidence is abundant that the strategy is working as well as it can considering AA's much higher than industry labor costs plus its inability to fly more than 47 70-seat RJs (compared to much larger numbers of large RJs permitted at UA and DL).

And, US is not dysfunctional. The pilot dispute is between two pilot groups who don't see eye to eye on seniority integration; there is little the "company" can do to resolve this at this point -- it's a union matter. The rest of the airline is actually running quite well, and their strategy of focusing on their core strengths (PHL, DCA, CLT, PHX) and streamlining the flight (will finally be all narrowbody Airbus in a few years, with the exception of the E190s) makes them an attractive merger partner.

It's not just the failure to integrate the pilots. It's the teetering on the brink of yet another bankruptcy filing 2-3 years ago as US was dangerously low on cash and subject to a credit card holdback. To Parker's credit, US has pulled back from that precipice and has bolstered its cash position in the past couple of years.

Still, in 2011, US earned just $111 million in net profit (ex special items) compared to much larger profit margins at UA and DL. Despite two bankruptcies at PMUS and one at PMHP and resulting very low labor costs, US barely made any money last year compared to UA and DL. AA's labor costs last year were about $2.2 billion higher than they would have been at US' labor cost structure - if AA achieves just a part of those savings in its current Ch 11 case, AA could be very profitable compared to US.

 

[WorldTraveler]

While the discussion here is clearly to try to prove the superiority of either AA or US as an entity and thus argue whether one or the other is superior in an acquisition, there are holes in both sides of the arguments.
First, every airline has seen revenue increase because fuel prices have indeed gone up. It is no more honest to argue that revenues have gone up without acknowledging how those increases have related to peers than it is to simply say as Bob Owens does that because revenues have gone up so should employee wages.
The fact is that some airlines have done a better job of growing their revenues over the past couple years relative to the industry than others. The simple fact is that neither AA or US have been at the forefront of the industry – but neither have been at the back of the pack either.
Second, AA and US’ networks have both lost a lot competitively over the past five years… not as much because either of them shrank but because their peers grew their networks through mergers. There is no evidence yet that alliances and joint ventures alone can replace competitive size that comes in any region of the world. The fact that both AA and US are at revenue disadvantages compared to DL and UA in areas of the world where their competitor is larger shows that there is a lot of work to do be done just to be on par… unlike US, AA has its own revenue advantages in Latin America and they clearly are focused on expanding and protecting that share. (see this month’s CEO article in American Way which focuses on AA’s MIA operation).
Third, both carriers do have their own “cornerstones” as does every other carrier. AA’s effort several years ago was an attempt to refocus on where it competitively could win; US has done the same thing. The only difference between AA and US and DL and UA is that DL and UA have been able to build on their own strengths while growing their weakest positions through merger. Ultimately, size and the ability to merge does help deal with market disadvantages.
Fourth, as much as others want to continue to push for an AA-US merger, there is no real logical reason to believe that it can work…. there are enormous obstacles to overcome that are rooted in who each of those carriers are today. Acquiring much larger AA before they have fully restructured would take US down – no questions asked. But if AA can emerge on its own, US has probably lost its opportunity. But it also doesn’t change the fact that because neither AA or US is in the best position in the industry, consolidation will be led by those companies who do have the financial strength to pick off the smallest part of any airlines that have value and building on the combination from a position of strength for at least one carrier. Combining two less than strong carriers, esp. with the acquired being much larger than the acquirer, is a recipe for both to fail and the scraps that are left to be acquired from their larger competitors who will be free to pick up the leftovers with very little risk.

 

[diamondcutter]

While the discussion here is clearly to try to prove the superiority of either AA or US as an entity and thus argue whether one or the other is superior in an acquisition, there are holes in both sides of the arguments.
First, every airline has seen revenue increase because fuel prices have indeed gone up. It is no more honest to argue that revenues have gone up without acknowledging how those increases have related to peers than it is to simply say as Bob Owens does that because revenues have gone up so should employee wages.
The fact is that some airlines have done a better job of growing their revenues over the past couple years relative to the industry than others. The simple fact is that neither AA or US have been at the forefront of the industry – but neither have been at the back of the pack either.
Second, AA and US’ networks have both lost a lot competitively over the past five years… not as much because either of them shrank but because their peers grew their networks through mergers. There is no evidence yet that alliances and joint ventures alone can replace competitive size that comes in any region of the world. The fact that both AA and US are at revenue disadvantages compared to DL and UA in areas of the world where their competitor is larger shows that there is a lot of work to do be done just to be on par… unlike US, AA has its own revenue advantages in Latin America and they clearly are focused on expanding and protecting that share. (see this month’s CEO article in American Way which focuses on AA’s MIA operation).
Third, both carriers do have their own “cornerstones” as does every other carrier. AA’s effort several years ago was an attempt to refocus on where it competitively could win; US has done the same thing. The only difference between AA and US and DL and UA is that DL and UA have been able to build on their own strengths while growing their weakest positions through merger. Ultimately, size and the ability to merge does help deal with market disadvantages.
Fourth, as much as others want to continue to push for an AA-US merger, there is no real logical reason to believe that it can work…. there are enormous obstacles to overcome that are rooted in who each of those carriers are today. Acquiring much larger AA before they have fully restructured would take US down – no questions asked. But if AA can emerge on its own, US has probably lost its opportunity. But it also doesn’t change the fact that because neither AA or US is in the best position in the industry, consolidation will be led by those companies who do have the financial strength to pick off the smallest part of any airlines that have value and building on the combination from a position of strength for at least one carrier. Combining two less than strong carriers, esp. with the acquired being much larger than the acquirer, is a recipe for both to fail and the scraps that are left to be acquired from their larger competitors who will be free to pick up the leftovers with very little risk.

Again thank you Jimmity Cricket for yet another lesson about speculation and your opinion ...scraps really . Please take your fortune telling over to your almighty DL board. And when you do post try and make it short, i know your brain might explode but you are losing the crowd.

 

[WorldTraveler]

something tells me that the length of the message has nothing to do with your dislike... it has more to do with the fact that you don't want to hear that US can't expect someone else to solve its problems.... they must do that on their own.
(my reply was shorter than yours )

 

[fifidriver]

Ah yes, It seems that both AOL and USAPA have the same track record to date. Both sides have held the other one to a stalemate. Looks like both sides have seem to have met some of their goals. Too bad the two sides could not meet in the middle somewhere huh? That might be quite the successful venture. Oh wait...I forgot that whole NIC or nothing thing.

deleted incorrect thread sorry.

 

[USA320Pilot]

AMR Risks Cash Drain as Discord Slows Union Concession Talks

Click here to read the story.

 

[USA320Pilot]

US Airways Cites Lessons of Bid for Delta as AMR Offer Weighed

Click here to read the story.

 

[UPNAWAY]

SWA announced today they will lose money in Q1 despite fuel hedging. My guess is everyone else will too.

 

[Phoenix]

something tells me that the length of the message has nothing to do with your dislike... it has more to do with the fact that you don't want to hear that US can't expect someone else to solve its problems.... they must do that on their own.
(my reply was shorter than yours )

It was until you thought it more important to answer arguments about length.

 

[john john]

US Airways Cites Lessons of Bid for Delta as AMR Offer Weighed

Click here to read the story.

US Airways Group Inc. (LCC), now weighing a possible offer for American Airlines, learned from its failed 2006 bid for Delta Air Lines Inc. (DAL) that such attempts need to be friendly and have labor support, President Scott Kirby said.
“We can’t do it alone,” Kirby said. “It’s important, in an ideal world, to have the constituents of the bankruptcy, principally labor, on your side. An outright hostile transaction won’t work.”


Rookie move

 

[usa1]

"Charlotte is the fourth-most profitable hub operation in the country [due to] its unique catchment area," Kirby said. In Wilmington, for instance, "we can be the dominant carrier for corporate accounts" because passengers can connect through the Charlotte hub, which offers 605 daily departures."

The report, which advocated for a merger, detailed American's domestic network shortcomings and listed 30 smaller cities, such as Columbia, S.C., Providence, R.I., and Richmond, Va., where Delta and United offer far more service to their hubs than American offers to its hubs.

http://www.thestreet.com/_yahoo/story/11454309/1/us-airways-exec-labor-support-needed-for-takeover-bid.html

 

[BoeingBoy]

The report, which advocated for a merger, detailed American's domestic network shortcomings and listed 30 smaller cities, such as Columbia, S.C., Providence, R.I., and Richmond, Va., where Delta and United offer far more service to their hubs than American offers to its hubs.

The trouble is that by selectively picking cities that can be said of every network carrier, and probably US more than the others.

Jim

 

[USA320Pilot]

U.S. Airways Merger With American Appears Likely, $14 Billion Deal In The Works To Become Largest Airline

Click here to read the story.

US Airways Exec: Labor Support Needed for Takeover Bid

Click here to read the story.

 

[BoeingBoy]

"U.S. Airways would also cancel deliveries of many of American's outstanding orders for new aircraft"

There goes any suport from Boeing...

Jim