gottaluvNW

Given the news of the possibility of the AA / US merger (as reported on CNN and other media this morning...) - which of the two programs do you think will survive - DM or AAdvantage? And which of the two alliances might the merged company stay in?

FWAAA

Really? I don't work in AA management, so I must be a "5 percenter." In the first quarter, AA's unit revenue (PRASM) was up by more than 10% and total revenue was up by $500 million compared to the first quarter of 2011. That's a fairly decent revenue increase. AA's labor costs are more than $2 billion higher than they would be if AA enjoyed the benefits of the US labor agreements and paid AA employees what US pays its employees.

If AA had enjoyed the US labor costs since 2005, AA would have been profitable each and every year since then. US? Since the merger with HP, it has reported an aggregete net loss.

Yes, AA has suffered a revenue problem for the last 2-3 years. That doesn't change the fact that it has the highest labor costs in the industry. And if the first quarter is any indication, AA management may be well on the way to solving the revenue problem.

Exleftseat

Remember, too, that at the far end Airbus will do everything it can to help US doing this merger and be successful. AB was heavily involved in the exit financing at US's last bankruptcy and practically made U.S. the only legacy with nearly exclusive AB content, let alone the couple of old 37,57 and 67 and the few EMB. Getting the merger accomplished would very well open the door to canceling the AA Boeing order for 200+ planes and converting it into an all AB order adding to the existing 260+ AB already on the books.

PittDoc

Let's just say I'm happy I flushed out my remaining US miles with a *A upgrade to TATL F. Now down to < 5K which is less than I have in seldom-used One World (BA) account.

Seriously, you'll do better betting at a Vegas Black Jack table than trying to predict this merger. You'll also have a better debate in a different thread. This one already has enough back and forth discussion without clear conclusions.

FlightNurse

Why don't they matter, aren't the east pilots still not wanting to play nice with everybody else? I beleive they (the east pilots) are holding back US from expanding as they would like. However, if they do merge with AA, the east pilots wont have a leg to stand on and be in the same boat as the HP pilots are currently..

BearX220

What's magic about four? Whether it's three or four, the customer is screwed. Who's the quality network carrier in this country now? Hint: there is none.

Six was a good minimum. This whole trend should have been arrested before NW/DL.

dcpatti

The company I work for buys other companies all the time. Seriously, it's about 3 or 4 times a year. We get emails like that one when the rumor mill is turning, but not all of them come to fruition. It's just a way to cut down on the gossip, rumors and panic. Of course it never fully calms people down, but it does take some of the crazytown feel out of the atmosphere when all the employees are trying to figure out what's going on.

What I would be more interested in would be a period of complete radio silence between management and employees, as the SEC has some pretty rigid guidelines on what you are and aren't allowed to say during those critical final phases of a merger or acquisition. When these guys stop talking to the press and to their employees, we'll know some big announcement is on its way--- but even then we won't be able to predict the outcome.

I'd say it's still hinging on the two things it's always hinged on: the AA creditors' acceptance of the plan, and regulatory approval. Everything else is just for show.

iahphx

Your buddies in Tempe are very smart. Hopefully -- they're smart enough to get jobs at the new company!

Regulatory approval for this deal is almost a shoe-in. In a democracy, logic and reason occasionally fly out the window when it comes to gov't approval (um, think Keystone pipeline), but you generally need an important political constituency to have a shot at a counter-intuitive outcome. Here, that might be union hostility to the deal. But wait -- the big unions are behind the deal! So it would seem logic will prevail. And since the Feds have already allowed NW/DL and CO/UA, it would be INSANE (and completely unfair) for them to deny US/AA (in bankruptcy no less). Bottomline, the odds of a "regulatory problem" with this deal is probably 2% or less.

There is approximately zero percent chance of Dividend Miles continuing to exist and a 100% chance of AAdvantage being the surviving entity. No brainpower needs to be expended "worrying" about this. It is possible that US management could tinker with AAdvantage, but that's no more likely than existing AA management tinkering with it sometime in the future.

And the new carrier will be in oneworld. I'd put 95%+ odds on that.

Not so fast, there. Parker will happily throw Airbus under the bus (bada bing) if that's what it makes sense for him to do. This ain't Bethune and Boeing. Parker has never expressed great loyalty to Airbus. My guess: there will be a lot of new Boeings in the new AA's future. Aren't they on the AA creditors committee now? If so, I think we have our answer.

Superguy

I don't buy that. This DoJ seems a lot more concerned about the net result of what happens after a merger. All you have to do is look at T-Mobile and AT&T. Deutsche Telekom wants to dump T-Mobile as it's not making what it wants out of it. Sprint wanted T-Mobile, AT&T came with a better offer. The AT&T merger made a lot more sense from a financial and technology. AT&T's books are in much better shape and their networks are compatible. In theory, it's a win-win for the investor and the consumer as the networks would have been greatly expanded, jobs would have been preserved, there would be a brighter future, and lots of cost savings.

Sound like a familiar argument?

Well, DoJ came in and squashed that merger. DoJ was concerned about an duopoly between Verizon and AT&T leaving Sprint to lick up what was left over.

The results of this would be similar - you'd have DL/NW, UA/CO, and US/AA controlling most of the market with WN really only competing in the domestically. AS, F9, and B6 would likely remain niche players. Also don't forget to throw in that there is some antitrust immunity involved with AC/NH/UA/LH (depending on route) and DL/AF/KL mixed in there too. That's a pretty tight lock on both domestic and international markets with limited competition.

At least with US and AA separate, there's some more competition in the market. US isn't involved in the *A JV's and can compete on its own.

If Obama remains in office, I don't see this merger going thru. A Romney administration would be more likely to pass it.

I don't see much upside. I think it's more about Dougie expanding his empire than what's really good for either company.

FWAAA

The antitrust lawyer in me says there are no legitimate antitrust issues with a merger between US and AA, but the political scientist in me agrees that the Justice Department might raise a stink over this combination. I can already imagine the impassioned pleas by Representatives and Senators to block this proposed transaction.

Superguy

In a lot of ways, I didn't see a lot of antitrust issues with AT&T/T-Mobile going thru.

What AT&T wanted most was spectrum - they're dying for it now. While I'm sure they would have loved to have kept as many customers as possible, if they lost some customers to Verizon or Sprint, that was the cost of getting what they needed. Most probably would have left and went to Sprint anyway, so I think the market would have balanced itself out over time.

Hell, they were even willing to sell off some markets to satisfy DoJ.

Not good enough.

I don't think so much it's necessarily so much of what AA and US would become if they combined rather what the market would look like afterward. 3 megacarriers controlling most of the market, with really only WN to put up some sort of fight.

FWAAA

Agreed. Plus, the EU will no doubt weigh in with its view of the anticompetitive nature of a merger. My view is that as long as three viable alliances remain, the EU would probably approve. The potential wrinkle is that US currently competes with its Star Alliance partners (since it is not in the immunized joint venture) and thus a merger with AA reduces transatlantic competition from four large US competitors (Star, Skyteam, Oneworld and US) to just three (the three alliances). It goes without saying that AA-US might have to relinquish some LHR slots - probably equal to US' currrent LHR portfolio.

meh130

I think given the DOJ approved DL/NW, and CO/UA, (and even WN/FL), they have no choice but to approve US/AA. Precedence has been set. DOJ allowed DL/NW, and the combination leapfrogged UA and AA to become the largest airline (in terms of ASMs). DOJ allowed CO/UA, and the combination leapfrogged AA to become the largest airline. A US/AA merger would be roughly equal in size to CO/UA. Also, the DOJ could simply require gate and slot sell-offs where anti-competitive concentrations would exist.

I think three 200K-220K ASM, international alliance member, legacy airlines, each with strong regional carrier support, would work well and provide plenty of competitive choice. Those in legacy hub cities will always pay more for non-stops on the local legacy carrier. The one drawback is the low-cost carrier competition to the legacies now is pretty much limited to WN, B6, AS, and niche carriers.

nall

Lots of discussion of this over in the AA forum, was curious on the opinions here.

If you believe the offer US made the unions at AA, the merged airline will retain the American Airlines name and headquarters in Texas, and will remain in OneWorld.

dtremit

There were a few things that made AT&T/T-Mobile unique, though, neither of which apply here. First is the "zero sum" nature of wireless -- as you state, the spectrum is limited, so if a few companies control all the spectrum, there's no ability for new entrants to join the market. Moreover, you need spectrum in pretty much the entire country to be a credible mobile phone operator. LCCs have demonstrated pretty readily that you can operate an airline without comprehensive service and still make a sustainable profit.

The other issue with the AT&T/T-mo merger, of course, is that it would have all but doomed Sprint, which I think was a major source of concern.

WN is already bigger than AA, so they're a pretty credible opponent. I think there's a pretty good argument that smaller carriers can grow to compete when the network carriers create an opportunity with high prices.