Word is AA/US have settled with the DOJ

[cltrat]

did I miss in the thread title where it said discuss how great and omnipotent Delta is?

 

[robbedagain]

I dont think you missed it cltrat

 

[WorldTraveler]

see, the issue has long been that AA and US supporters here have wanted to tout how well their companies and unions do but the conversation gets really uncomfortable when the topic of how well they fare when stacked up to their peers.

AA and US people trail their competitors' employees in pay by a wide margin.

AA and US have given up significant amounts of revenue to competitors including DL.

And let's not forget that it was AA and US themselves who said that new AA and US would be the world's largest airline.

I suppose throwing a title like "largest" is ok because it only focuses on one's own company and has nothing to do with any other airline?

You see, it is ok for you all to tout how well you are doing and used comparative or even superlative terms but it isn't so cool to hear someone else telling you that you really aren't what the PR dept. is telling you.

Since AA and US continue to push that this will create the world's largest airline and you all want to bask in the glow of all of that, then it seems only appropriate that you be reminded of the enormous challenges that you are going to face in order to make this merger work.

I'm happy for those of you who are loyal to your companies.

But you should be very weary of all of those claims and promises in light of both of your companies continual loss of revenue and markets to competitors, which do include DL.

And as long as claims of superiority fail to address the real structural reasons why AA and US both suffered such great losses at the hands of competitors, the chances are very high that history will repeat itself and new AA not only won't achieve the goals you think it would AND labor won't achieve the huge pay raises that it was promised as part of supporting the deal.

 

[cltrat]

WT, while I am quite aware competition is keen, I feel like much of what you share is bias as well toward DL.
At the end of the day it's all opinion and you know what they say about those.

 

[WorldTraveler]

and if what I say is false, then you have nothing to worry about.

The fact that so many people here do get wound up about what I say compounded by the fact that I do in fact have a pretty good track record of pointing out some pretty important industry trends says that you are genuinely concerned that what I say is accurate.

I have nothing to gain or lose if AA-US is wildly successful.

But I also am not ignorant of what has taken place in the industry over the past 10 years and a merger announcement isn't about to suddenly change things that have been in motion.

 

[MetalMover]

I have nothing to gain or lose if AA-US is wildly successful.
 

Really? Could have fooled me.

 

[silverbird007]

WT you seem to be really upset by your posts. Whats wrong? If AA and US are going to be complete failures (as you seem to think) I would think you would be happy? I know Deltamart is going back to #3 but don't worry so much. When all your predictions come true and AA is liquidated you will be able to relax again. The half billion $ profit means nothing. (That AA reported last month). Get help WT!

 

[IORFA]

@LPB, there's nothing specifically which says LFC's or LCC's have to get the slots. The Acquirer has to be acceptable to the USDOJ, which says to me they won't be approving UA or DL (as already indicated on the call today), and history says they'll favor new entrants or low-fare carriers. Conventional wisdom is that it will go to the two with the deepest pockets -- B6 and WN -- and possibly a few thrown out to guys like Westjet. Doubtful that Virgin America would qualify since they are a west coast carrier and I don't think any perimeter exemptions are being divested.@IOR, codesharing isn't specifically prohibited, but there is language which says they can't grow beyond the percentage they currently hold during the ten years the decree is in place. Codesharing would likely push that a bit too far, and get them a smack upside the head.But AA and B6 really don't need to codeshare at DCA if they have AAdvantage/TrueBlue reciprocity in place like AA and AS have, or DL and AS have. Better yet, get Jetblue into oneworld, and all bets are off.

I agree, I will expand that a little by maybe being able to include both Jetblue and Westjet into oneworld. I also thought the decree said something that AA would have to notify the DOJ if they were to acquire any DCA slots in that 10 years. Which means to me that they are not necessarily precluded from getting anymore. I read that to mean that if they come from a "legacy" airline it might be OK. Anyway, this only lasts 10 years. When WT's favorite airline disappears in that time frame AA will be able to acquire their slots! Just for the worlds biggest blowhard!!!

 

[Jacobin777]

Maybe it's just me, but it appears the DOJ caved.  These don't seem like many divestitures in the grand scheme of things.  Combined AA/US can easily absorb these divestitures by upgauging, eliminating duplicate routes, downgauging/deemphasizing the Shuttle (who doesn't take Amtrak NY-DC and NY-BOS these days anyway?), etc.  To me this is a pretty good deal to get the deal closed and avoid the uncertainty of a court decision.  It's a lot less than I thought would be required.

 
I agree, the spineless DOJ completely caved. Barely anything came out for "consumer protectionism".
 

DP was willing to give up anything to get this deal.  The DOJ knew it...hell, he even unzipped his fly when he bought a house in Dallas prior to the decision.   I think this is just but a small indication of the shrewd business man that he is NOT.
 
I think in the long term, AA will survive not because of him...but despite him.  
 
That said, congrats to you US employees!

 
I agree, DP wanted this deal bad. I wouldn't be surprised if he sold his soul to the devil in blood..LOL
 
AA will be negatively affected for years before it will be time for DP & Co. to go IMHO. By then, a lot of damage will have been done.
 

given that the divestitures are far larger than anything every required of any other US airline, I'm not too many who would agree with you that the DOJ caved.

If AA/US can absorb all of these divestitures by upgauging, then the slots most certainly should be given to other airlines who can use the limited national real estate to expand service, not squat on slots and gates which the DOJ said are necessary to ensure meaningful competition.

 
The DOJ certainly did cave. Why don't you compare their original anti-trust suit to what was eventually settled for.
 

I think even Doug Parker is not stupid enough to agree to that.
 

 
Yes he is. He's offered "unsustainable lollipops". The cost base of the new AA will be huge. Even with an oligopoly, the NewAA will have an income problem.
 

 precisely..... there are indeed rules about controlling the carriers that gain the low fare carrier slots...so the only option is codesharing
and then we still have people who believe that a partnership with B6 is supposed to help AA despite the fact that B6 has pushed AA out of more markets in NYC, only to watch DL begin service in many of those markets.... but again, somehow, we are supposed to believe it will be different this time around?
 
it doesn't matter that if 44 slot pairs are divested and they all go to low fare carriers, AA/US' combined operation will be much smaller as a percentage of the airport than it was before while low fare carriers will be much larger.

The average seat size is taken from schedule data TODAY. US has the smallest average aircraft size at DCA of any hub and the smallest average aircraft size of any carrier at DCA. They use small aircraft because they don't want to put more seats in the market.

If low fare competitors - who don't use RJs - gain all 44 slot pairs - AA-US will see a significant increase in the amount of low fare competition. They will have to respond with larger aircraft which will push down their yields at the very time that their costs will be going up as part of the merger integration process.

And then we have the whole question of service to small and medium sized cities which AA/US are presumably going to be able to walk away from even though that was a key part of the discussions by many of the states and communities when the case was first filed.
We are supposed to believe now that AA/US is going to be able to dramatically reduce the number of flights it operates to small/medium cities so it can flood the market with mainline jets in order to fend off the 44 new low fare carrier flights?

Methinks either the DOJ screwed the entire rest of the country in favor of getting a lot more low fare competition in DCA or you don't have the full story.

I'm going with the latter.

As for NYC, you still want to believe that AA can become something significAAnt in NYC with a focus-city strategy to multiple hubs/other focus cities despite the fact that DL and UA serve all of those cities PLUS have service to many more cities.
AA has a lower fare in LGA-ORD because they are dumping capacity into the market in order to maintain their market share, the same thing they are doing in LAX, even though some people think that flying to Asia from LAX is good for their brand. There is nothing about this merger that is going to improve AA's presence in the local LGA-ORD market. AA has more seats but do you realize that DL with its Ejets (the same ones that you and others seem to think is going to save AA's operation at ORD from UA's competitive pressures but are insignificant if DL uses them) has more frequencies in LGA-ORD than UA?

You still want to believe that AA/US will be able to effective compete against DL and UA yet DL has lower costs than AA/US now and DL's are getting lower while AA/US' costs will increase. AA/US hasn't solved its strategic problems in Asia or NYC as much as you think that combining two focus city operations against two other carriers with full-sized hubs is going to fix that. It also doesn't change that DCA and DFW, AA and US' highest margin hubs are going to be significantly degraded in terms of profitability because of low fare competition, even though AA and US have done a very poor job of defending their hubs from low fare competition for years.... but somehow we're supposed to believe that it all changes today?

Your right, E. It's a marathon, not a sprint. But AA and US and your and others' support of them hasn't been based on competitive logic but wishful hope for years - and that isn't changing one iota with this merger.

 
 

If you want to believe that AA/US together will be all they have advertised to you they will be, then I certainly don't want to be the one to bust your bubble.

 

 
Certainly not busting my bubble. IMHO this will end badly for the NewAA. I cannot wait until the unions start to "cry foul" or "we can deal with anyone, including satan himself, but just not Doug Parker". Or how about:
 
"We're tired of taking paycuts and givebacks while Parker/management give themselves millions on the backs of our hard work and givebacks"
 

 
Why do you think it will take that long?  6 months....max.

 
LOL..I was trying to give at least some benefit of doubt.
 

I'm not bent out of shape with the merger settlement.

I have said for years... perhaps you have missed it - that AA and US have both made major strategic failures over the past ten years that have weakened themselves.
They now want to merger as if that will undo all of the damage they have suffered.

AA/US labor supported this merger merely out of the hope that they would win a payback at some point.

Despite the fact that the merger settlement is cutting out millions of dollars in revenues and introducing vast amounts of new competition, AA/US leaders are saying that the merger benefits will be the same as before.


Validity is determined by proven results.

 

 
Labor are foolish if they think this will help them down the line in a few years.
 

 
 

I agree, I will expand that a little by maybe being able to include both Jetblue and Westjet into oneworld. I also thought the decree said something that AA would have to notify the DOJ if they were to acquire any DCA slots in that 10 years. Which means to me that they are not necessarily precluded from getting anymore. I read that to mean that if they come from a "legacy" airline it might be OK. Anyway, this only lasts 10 years. When WT's favorite airline disappears in that time frame AA will be able to acquire their slots! Just for the worlds biggest blowhard!!!

 
I would love to see B6 in OneWorld.

 

[WorldTraveler]

WT you seem to be really upset by your posts. Whats wrong? If AA and US are going to be complete failures (as you seem to think) I would think you would be happy? I know Deltamart is going back to #3 but don't worry so much. When all your predictions come true and AA is liquidated you will be able to relax again. The half billion $ profit means nothing. (That AA reported last month). Get help WT!

 
 I'm not upset about anything other than the glee that AA/US fans have now since they seem to think that they are invincible because they have won a merger which anyone with half a brain could see wasn't in AA's best interests from the beginning.

I didn't say anything about AA being liquidated.... but you and others can't seem to grasp that AA and US, primarily AA creditors and labor and Parker from the US side were so desperate to throw together a deal that they agreed to just about anything... there is no AA/US fan that predicted that the divestitures would be as large as they are.

Let's keep in mind that the DOJ itself noted how far fares fell (double digit percent) at EWR after WN gained less than half of the number of slots at EWR as new AA will have to give up at DCA. Keep in mind that EWR is part of a much larger market.

You can't stand the fact that someone is shining the light on yet one more strategic failure on AA's part (this time not the fault of management) that will have enormous implications on AA's future.

I agree, I will expand that a little by maybe being able to include both Jetblue and Westjet into oneworld. I also thought the decree said something that AA would have to notify the DOJ if they were to acquire any DCA slots in that 10 years. Which means to me that they are not necessarily precluded from getting anymore. I read that to mean that if they come from a "legacy" airline it might be OK. Anyway, this only lasts 10 years. When WT's favorite airline disappears in that time frame AA will be able to acquire their slots! Just for the worlds biggest blowhard!!!

and you are as ridiculous thinking that a merger of AA/US is going to result in the demise of DL when it is AA/US who are divesting assets, not DL. DL is on track to report a $2B/year profit. No, AA is not precluded from further asset sales but you have to have someone to buy.

AA's next strategic challenge will be to figure out how to accommodate 44 new low fare carrier flights at DCA on top of about 100 new WN flights to AA's top markets from the DFW area. Let's also not forget that AA is spending $200M a year in losses to build its Asian route system.

When new AA is racking up multi-billion dollar profits and has integrated US (actually you are well aware it will be the other way around), then we can start talking about what condition DL is in and whether AA is in any position or not to be winning against them.

Jacobin,
we are now at the same place... this merger will be a disaster for AA... they have agreed to give away the farm in order for the creditors to be able to cash out before it becomes apparent the enormous strategic failures they have made... but AA hasn't been managed for long-term strategic success for 10 years... why should the creditors start now?

Labor has just bought one of the biggest lemons this industry has ever produced and there have been some biggies.

 

[diamondcutter]

WT must feel really threatened , you can tell by his post. It's really sad, he may even explode.

 

[USFlyer]

given that the divestitures are far larger than anything every required of any other US airline, I'm not too many who would agree with you that the DOJ caved.

 
Mike Boyd, Gordon Bethune, Wall Street Journal, Raymond James Financial analysts, JP Morgan Chase analysts, and several others seem to disagree.  Considering the DOJ wanted to block the transaction outright only a few months ago, this settlement seems like one that is "just enough" to save face and get out of this without too much egg on their faces.
 
Let's not forget that US and AA competed on some routes, such as DCA-RDU, DCA-BNA and LGA-CLT.  Eliminating this overlap + selling the slots already leased to other carriers + selling slots currently unused (notably the ones at LGA) comprises a good chunk of the slots to be sold.  Then, other schedule adjustments can be made to accommodate the other divestitures.  Make no mistake, AA+US scrutinized in detail how the divestitures would impact the combined airline and felt it still made sense to proceed.
 
FWIW, I'm a DL fan, too.  I actually fly them about as much as I fly US these days.  Quite frankly, I think all four large carriers -- UA, DL, WN and the new AA -- are in a good spot to compete and thrive going forward.  No one has a "perfect" network but each has strengths and management teams that know how to use those strengths.
 
I think it's time to turn attention to the next huge hurdle, and that is integrating these two large carriers.

 

[USFlyer]

WT, while I am quite aware competition is keen, I feel like much of what you share is bias as well toward DL.
At the end of the day it's all opinion and you know what they say about those.

 
Amen.

 

[WorldTraveler]

Mike Boyd, Gordon Bethune, Wall Street Journal, Raymond James Financial analysts, JP Morgan Chase analysts, and several others seem to disagree.  Considering the DOJ wanted to block the transaction outright only a few months ago, this settlement seems like one that is "just enough" to save face and get out of this without too much egg on their faces.
 
Let's not forget that US and AA competed on some routes, such as DCA-RDU, DCA-BNA and LGA-CLT.  Eliminating this overlap + selling the slots already leased to other carriers + selling slots currently unused (notably the ones at LGA) comprises a good chunk of the slots to be sold.  Then, other schedule adjustments can be made to accommodate the other divestitures.  Make no mistake, AA+US scrutinized in detail how the divestitures would impact the combined airline and felt it still made sense to proceed.
 
FWIW, I'm a DL fan, too.  I actually fly them about as much as I fly US these days.  Quite frankly, I think all four large carriers -- UA, DL, WN and the new AA -- are in a good spot to compete and thrive going forward.  No one has a "perfect" network but each has strengths and management teams that know how to use those strengths.
 
I think it's time to turn attention to the next huge hurdle, and that is integrating these two large carriers.

the next huge hurdle is figuring out how to compete in markets where AA and US have to do it. PHL is the ONLY hub which AA or US have successfully defended against a low fare carrier - WN - and WN wasn't really sure it needed PHL at the size it did given BWI just down the road.

AA/US didn't compete on price anywhere close to the way they will have to with B6 and WN.
If you want to understand what happens when network carriers have to compete with aggressive LFCs, look at DAL/DFW (combined) to STL and MCI after WN gained the right to fly to those markets from DAL. Fares fell dramatically and within a year WN was at the same share level as AA and at comparable fares.
If new AA has to suddenly share the DCA market with low fare carriers and watch fares go down in the process, the impact to new AA will be enormous.
The same thing will happen at DFW as the WA falls.


If AA and US can successfully compete, that would be great and everyone wins. But the simple reality is that AA and US' route networks are built around monopolistic hubs - far more so than any other carrier - and AA and US have not only a poor track record of competing against low fare carriers but new AA's costs will be higher than it is now while DL and the low fare carriers will have costs 7-10% lower.

The Wall Street analysts you mention don't understand those economics and haven't demonstrated a real understanding of how the industry will change.

Again, let's check back in a few years. I can say with certainty that all of the positive things you thought would exist from this merger including new AA's strength are not going to materialize.

The simple fact is that AA and US pushed a merger because the creditors at AA believed their risk was lower than if they went w/ a standalone plan. They will cash out long before the dust has settled. Labor jumped on the bandwagon based on promises that will not be kept.

Everyone will lose except for the low fare carriers.

 

[Glenn Quagmire]

The Wall Street analysts you mention don't understand those economics

"Mike Boyd, Gordon Bethune, Wall Street Journal, Raymond James Financial analysts, JP Morgan Chase analysts, and several others seem to disagree."

You dismiss them out of hand?

Those are some pretty successful airline analysts who do it more than just a "hobby" as you say you do. They actually get paid to be impartial and balanced.

So those listed by USFlyer are all wrong and you are correct. Got it. I guess we are all done here then.