hillrider

An interesting op-ed from the Texas attorney general (home of AA's HQ and DFW hub) at http://www.dallasnews.com/opinion/la...ays-merger.ece. He has some pretty strong words:

richarddd

US and AA say they will win. DOJ and AG say they will win.

How unusual that each side says it has the better case

FWAAA

I agree that if the DOJ stands firm on its position (doesn't fold like a cheap suit in exchange for some minor concessions by Parker), then the court will grant its requested injunction. I cannot envision any realistic scenario by which the deal is approved and AA-US gets to keep what it needs to be a dominant carrier.

I don't believe that any of the 2011 re-fleeting orders will be scaled back, even if the merger is 86'd. The orders were ratified prior to the merger, and are predicated on a stand-alone AA with financing in place for the first 230-some odd single-aisle planes.

Agreed. A stand-alone AA will keep the current orders.

To clarify, AA will achieve no more labor cost concessions from its unions. That part of the bankruptcy was settled almost a year ago for most AA employees and nine months ago for the pilots.

Stand-alone AA won't be required to implement the Parker Promises of wage and benefit improvements if AA remains independent. If AA management is smart, it will offer employees a restoration of at least 15% first dollar profit-sharing without demanding anything from the employees, and perhaps 20% to 25% would be better (maybe offset by small, minor changes to the contracts).

Unless there's a shock to the industry, AA won't be asking for further paycuts in this bankruptcy case.

US, on the other hand, may see its labor costs escalate if its pilots get together and recognize that they need to fight Parker and not each other.

The correct answer is that AA's costs remain where they are right now under the existing AA labor agreements.

Correct. If the merger is off, the contingent labor agreements are null and void. AA's labor costs will remain where they are right now. AA's costs did not increase when Parker signed those contingent agreements - they were conditioned on the closing of the merger. So AA's standalone labor costs will be higher than US current costs, lower than the merger labor costs would have been and much lower than pre-bankruptcy labor costs.

AA's bankruptcy labor costs will be slightly lower (IMO) than Delta and a lot lower than COdbaUA.

It's practically a certainty that the labor costs at US will increase once its pilots call off their standoff and get together and demand industry-average wages. Nobody knows when (or if) that will happen, but I'm betting it won't take too long.

hillrider

The Arizona attorney general (home of US' HQ and PHX hub) did an op-ed too, which is at http://www.azcentral.com/opinions/ar...ase-horne.html

hillrider

Alignment of the employees with the company's goals is worth much more than the 15-25% profit-sharing. I'm always perplexed as to why the leadership even contemplates negotiating this away (which both Horton and Parker did in the last round).

Seeing the profit-sharing restored would be ^

WhatsInYourBackpack

If anything, AA could be placing more orders as it will need Large RJs. Those have to come as AA orders, AA orders with contracted flying, or contract placing the orders.

The original labor negotiations gained significant ground to facilitate AA being able to develop regional flying (which should result in good news for mainline because it will provide feed that AA didn't have the advantage of before).



Agree on AA's costs, especially as the leverage ratio for labor improves with organic growth (--> read: more people around than the airline actually needs - or at least relative to the comps for other carriers)

The US labor cost issue is frequently ignored. US is a solid operation and certainly makes a good amount of money, but the pile of cash left at the end of the day is going to shrink as soon as their labor costs become more inline with the rest of the industry.

FWAAA

There is fare data that tends to show that among the US airlines, US Airways commands the lowest average fares per revenue passenger mile (yield) across the Atlantic, and has occupied that spot pretty much since at least 1995:

http://web.mit.edu/airlinedata/www/2...er%20Yield.htm

My guess is that like all airlines, there are routes where they are strong and routes where they aren't; on balance, US just isn't getting the high fares on TATL routes.

As pointed out above, US and AA/BA/IB compete on many TATL city pairs, not just to London and not just to FRA, as both airlines sell many nonstops and connecting flights between the USA and Europe.

hillrider

Interesting to see how AA squandered its revenue premium. They went from a whopping 23% premium (over the --sub Network figure) in the boom years of 2000 and 2001, stabilizing between 10-12% premium from 2003 to 2006, and then dove precipitously, to 1% in 2010 and a discount over the average in both 2011 and 2012.

Had never seen the actual figures, and they're scarier than the words describing the ruinous search for the bottom-of-the-commoditization strategy. Just imagine AA's profitability if it commanded a 10-12% premium vs. a 3% discount (that translate into 13-15% increase in revenues, with maybe a small increase in costs to offer the product that the premium commands).

Fanjet

USAirways has what, 1% of the number of flights out of TX that AA has? If people who support this merger want to come down hard on the politicians who oppose it, this guy is their poster child.

hillrider

Sorry for the little detour but the data fascinated me.

This is probably the most relevant picture (the one above was just Atlantic) of the "Arpey effect":



Just a note, this depicts the relative stage-adjusted premium/discount over the other legacies. It looks like it went in freefall starting from 2005 and it's a straight line to 2011, with an upward blip in 2009.

cbn42

I would think that it has to do with the placement of their hubs. Charlotte and Philadelphia just don't command fares as high as New York or Chicago. US also tends to fly to secondary European cities.

nova08

US flies to all of the major EU cities, they just don't serve them with as much frequency as the other majors

FWAAA

Today, Holly Hegeman, of PlaneBusinessBanter, posted a tirade on her subscription-only website ($197 a year) in which she railed about the DOJ's anti-competitive position on the US-AA merger. While there were many items in the long-winded piece with which I disagreed, there was one repetitive error in her column:

20% a year growth? Uhh, no. The stand-alone plan was 20% over five years, which works out to 3.7% growth per year.

http://hub.aa.com/en/nr/pressrelease...ity-and-growth

She repeats the error later in the column, so it's not as though the first instance is a typo:

Is math really that hard? 20% a year? That's quite a strawman, Holly.

Another particularly clueless portion is this:

Uhh, by time AA was ready to begin preparing its stand-alone Plan of Reorganization, Parker had already sold the UCC and the employees on his merger plan, so there was no opportunity to prepare a stand-alone POR and solicit votes.

If the merger is off, then the stand-alone plan is the only option other than liquidation, and only the under-13 year old crowd (who shouldn't be posting) believes that's a serious alternative at this point.

dayone

"[That] guy" is a poster child for a lot of things, none of them good. Even some of not-too-crazy Republicans are mad at him. It is amazing that he is so anti-AA. Maybe he hates the Susan G. Komen planes.

Hyperacusis

And oddly enough, for the first time in my life, I find myself agreeing with Greg Abbott.