greener_007

I, for one, am all for it!

I was hoping for some insightful analysis from the media, but I'm not hearing/seeing much - It's fascinating how the only "strength" they can draw from this tie-up is "Deeper Mexico Service". Correct me if I'm wrong, but AS and VX overlap on their Pacific Mexico routes, AS would only gain seasonal or year-round service between CAN and SFO/LAX.

First, it would be nice to see AS not continue to retreat at the thought of competition. The departure of AS from YVR to LAX over DL & AA's CRJ flights was puzzling, since AS would have lower unit costs with 737s and labor, but they have been afraid of their own shadow and their "friends" shadow for far too long. Having a base in SFO and LAX that they can re-establish (think the routes they gave away - SFO-LAX and LAX-SJC, mostly due to VX) would be possible, and with their fleet of Q400 and soon-to-be E-75s, they become even more valuable (again, D. Cush said so, he wanted "in" to the network feeds).

There are some valuable gains - LGA and DCA. These will take time to mature, but AS would need to figure-out where they're going to service them. DAL makes no sense. They could expand in ORD, or potentially BOS if gate switching could happen, though they would face competition to make these perimeter routes viable. Still, they are rare and valuable and worth the effort.

There's not much to loose. Maybe dump the recently announced SFO-DEN soon-to-be blood bath and put those aircraft to something else. Or, wait to see how it works. D. Cush has been better at route development then his predecessors, so maybe wait and see. I'd move the A320s off Hawaii and replace with 737-800s for efficiency too. Oh, and there's no need for multiple SFO-PSP daily flights.

I actually think there are some strengths that are being overlooked. First, AS and VX have a closer F product when comparing B9 (mint) with VX. Some harmonization (towards VX, please?) is needed, but not unattainable. Second, AS and VX could split the difference on P Economy (a term that I hate). VX's is overpriced but has some good perks, AS' to-be service is too me-too too-late. AS' food is decent, though VX is better. They've found a way to stay true to SF epicurean strengths (and aircraft limitations). AS, not so much. It's just whatever gate gourmet has provided.

AS wouldn't face labor challenges, as they would fold into the unions representing AS. They would gain a lower cost labor force which would reduce overall average costs. Compliment that with more efficiency, and it goes down farther.

The A320 would slot in (seat wise) where the over-extended 737-400s were used. Of course, A320s face weight penalties in the winter flying East, so AS could 're-distribute' airbuses to short and mid-con flights and preserve its 800s and 900ERs for transcon (at least until the neos come in)

That's the other benefit. VX bought the neo before it was the neo. They got them for a steal. Nearly every other airline bought them at a high price. AS would get something that slots between the NG and MAX in terms of price, with the CFM-LEAP, which keeps costs low.

As for mileage, AS has wisely decided to stick with its miles focus, which has become valuable as both a brand and a source of income. VX was never much of a player, and D. Cush acknowledged that. The Hawaii flights were primarily to ensure value to the FF members, keeping them in the family, since these are WC destinations of higher demand.

BOB W

The Virgin "America" name holds no value to the American flyer. They are irrelevant to the market and the tie to Virgin Atlantic and Virgin Australia is tenuous at best.

And there is this small, albeit up and coming airline with an extremely local name that few understand the origins of that may, at some point become a larger regional player. Few know its origin, but at some point a few may recognize it as DELTA.

Doomed to fail due to the name, but struggling to overcome the stigma nevertheless. Let's just hope (or not) that Delta One saves them from ruin and the scrap heap of history.

channa

It's not that difficult, if you look at what AA/US went through or DL/NW. UA/CO just made some bad choices which made things difficult on them and customers.


I wouldn't be so sure. In SF, they have a good reputation and are perceived as a cool, hip airline. They are often preferred to traditional carriers.

When the AS name comes up in conversation, people are often surprised they fly to Hawaii and Mexico from here, and they're confused why they fly to SEA not ANC from here.

PotomacApproach

Issue here is not that the fleets that are incompatible, but the business strategy. AS goes after routes where it can maintain high share. You rarely see it fly between cities where it only has 20% of the pax or ASMs. Meanwhile, VX mostly flies routes like SFO-LAX, SFO-JFK, SFO-BOS where there is tons of competition, and prices are set by the competing, higher share carriers. Have a hard time seeing AS spending the equivalent of its current cash in the bank, or financing a similar amount, so it can have a small piece of SFO-DEN or LAX-JFK.

ashill

In particular, the NYC-SFO/LAX markets require an entirely different class of product, particularly up front, then all the other transcons. AS so far has stayed out of those highly competitive, premium markets. But if they acquired VX and kept those markets, they'd presumably have to maintain at least a subfleet with the much-nicer VX F product. That works for AA, UA, and DL, but they have much more frequency on those routes, which helps justify the subfleet (as well as the fact that DL and I think UA use internationally-configured planes which rotate through the transcon routes, which obviously helps). AS may see that Mint is working for B6, though.

It would certainly be a significant shift in strategy. But maybe DAL is the opportunity to start a non-west coast focus city to broaden AS'a market that many here have clamored for. I have trouble seeing it, but it's not completely impossible. And VX is the only non-LCC left which gives AS a chance to get a head start on a flyover-country focus city without growing it completely organically. But a focus city with heavy competition both from WN and from their main remaining partner (AA) across town doesn't seem optimal, and I'm not convinced AS needs a flyover-country focus city anyway.

My guess is AS might take VX at a steep discount but wouldn't be devastated if they wind up just driving the price up for B6.

Eastbay1K

It didn't have to be that hard. UA/CO merged a "back end" system with a "rear end" system and merged the data from the superior, stable, and larger database to the rear end.

VibeGuy

VX/AS integration may be less problematic as they're already both on SABRE, no?

I've been splitting my flying, largely because VX has a better F product and I fly paid F when the premium is reasonable. 55" pitch is pretty remarkable.

eponymous_coward

It's not just A320s, though, it's A319s. Which have less capacity than AS's 73Gs (that AS wants to turn into freighters).

And quite frankly, VX pax would say "hasta la vista" if they had to fly AS's Blah Airlines product on SFO-FLL/BOS.


If miles were a good brand and source of income, more so than a revenue-based program, DL/AA/UA wouldn't be ditching them, and WN/B6/VX wouldn't be seeing any success.

Truly revenue-based programs have some benefits; dead simple to understand and redeem. You can always get SOMETHING out of it if you stay an engaged customer. It doesn't have the "I'm drinking Krug and caviar in a suite for pennies on the dollar!" edge to it, but quite frankly a FFP is insane if they are designing a program to appeal to FlyerTalkers who would cheerfully burn a program to the ground if they could get Krug for pennies out of it, tragedy of the commons style.

And you don't need 60 planes to fly to JFK from California.

So what happens next; do you hose over VX pax by ripping out VX F on most of their network and degrading the overall experience to AS brand standards? Or do you tell AS pax they aren't worthy by not bringing their planes up to VX brand standards?


I have to agree. Working through the anti-synergies doesn't sound like fun.

CDKing

That's my thought. They can always do it like WN and convert one route at a time

PotomacApproach

DAL does nothing for AS except bring more competition with WN and AA. It hasn't worked out for VX.

Niche, high margin carrier doesn't need a midcontinent hub, B6 does fine without one.

BearX220

My guess is that AS is serious about VX. A B6+VX tieup shifts the balance of power on the domestic airline landscape in ways that leave AS more vulnerable.

Today we've got four network legacies dominating, and a B-tier of eight more airlines that range from strong (AS, B6, HA) to middling (VX, F9) to inconsequential from a route map / traffic share standpoint (NK, SY, G4).

Merge B6 and VX and you've now got five strong national carriers owning well over 90% of US traffic, then a reduced B-tier of six also-rans dueling over what's left, with AS and HA the only two traditional players.

That's a different landscape, harder to navigate for smaller survivors that aren't outlier VLCCs, and I think AS would prefer not to see it.

There would be immediate domino pressure on AS to buy someone or get bought. And while I have long thought AS-HA would be interesting, it wouldn't buy AS any more mass on CONUS. So VX is the best strategy for AS.

channa

Excellent analysis. This is very much the same position that CO was in 5 years ago. Allowing UA-US to merge, would have left CO high and dry. With DL, AA, and a merged UA/US, CO would have been borderline irrelevant -- an international network carrier that wasn't big enough to compete with the big boys.

AS's predicament as you rightfully point out is that they play mostly in the B-tier space, which appears to now be consolidating. That said, the situation is not so dire for AS. There's nothing stopping them from acquiring more planes and building up say SAN if this doesn't work out. Or maybe something like BOS that is a stratified large city that could use some more strength. Or even creating a focus in a second tier city like AUS. It would take some cash and risk, but if they're looking at buying VX with their market cap of $1.6 billion (plus whatever premium this deal goes for), that's also a lot of cash (or stock).


Well it could. Much of AS's Hawaii service is duplicated by HA. Eliminating those AS flights and using those planes elsewhere could help a bit. Recall the utilization on the AS aircraft for Hawaii service is not always that great (e.g., there are a lot of day turns with few redeyes so those planes sit back on the West Coast overnight).

A big problem with an AS-HA merger would be the preferences of the client bases. There is a huge preference for local businesses in both SEA and Hawaii that, with few exceptions, is generally not found elsewhere in the country. A mainland company buying HA may spread the Hawaii-originating business around to other carriers. Similarly, if AS weren't SEA based, they're just another outsider in the SEA market, like DL, and the SEA customer base may shift some as well. This would erode a lot of the "lock" that these two companies have over their home clientele.

Major G

Well, HA is a true international airline and that aspect might be a way for AS to develop into a major airline and avoid being in the B-tier. I know a lot of us longtime AS' fans may not like to hear that, but if the tier is consolidating, it is better to be the acquirer rather than the acquired.

BearX220

That's a great point I hadn't thought of -- a merger would free up a certain number of 737 frames to support organic system growth on the mainland, and possibly 717s could come home too if Horizon took over some or all of the interisland business.

But AS would still not acquire a new hub or complementary domestic system strength. They'd keep grinding out domestic heft as they do now, three yards and a cloud of dust and more low frequencies between SEA and smaller markets. I think they'd be scrambling and sweating against a B6+VX with great combined transcon and NE-Florida-Caribbean presence.

ashill

And AA/US have just demonstrated how to do a transition very smoothly. If any airline doing a merger in the future doesn't use the draindown approach recommended by Sabre and adopted by AA/US, they're nuts, at least if they're transitioning to Sabre.