Why I Want US Airways to Buy American

Every time I bring up the idea of US Airways buying American, I hear gasps of horror at the mere mention. (See Gary Leff’s piece yesterday for an example.) But in my mind, there would be nothing more exciting than seeing US Airways buy American out of bankruptcy and turn into a new, powerhouse American Airlines. I shake my head at people who thought American should have bought US Airways before just for the sake of merging. That would have made no sense. This, however, would be a great move.

Don't Keep American My American

The first thing to clear up is the basic philosophy. You’re not going to see American turn into US Airways if this happens, though you’ll hear plenty of speculation along those lines. The management team isn’t tied to any model in particular; it’s tied to making the best out of each situation. When this same team came from America West to take over the old US Airways, it realized that its best hubs still couldn’t match the revenue production of the power hubs that the Big 3 operated. So it had to focus on keeping costs down in order to remain profitable.

That is not the case at American. This would look more like American than US Airways when all was said and done. In fact, I’m sure it would still be called American and you’d probably still see the headquarters in Dallas Ft Worth. If this sounds similar to when US Airways tried to take over Delta, it is. We just never got to see what they could have done with Delta.

What would they do with American? There are so many things that run through my head. You can bet that plenty of airplanes in the fleet would be sent packing. Eagle would have to be sold off if anyone would even want to buy it. If not, it might just be shut down. That wouldn’t surprise me in the least. And who knows what would happen to the maintenance division. Big changes, I’m sure.

From a network perspective, there’s a lot that can be done. I don’t imagine we’d see dramatic changes in Chicago, Dallas, Philly, and Washington, but other places would probably look at lot different.

In the southeast, the airline could get Charlotte and Miami to play off each other. Miami gets more of the Latin/Caribbean flying that it excels at supporting and Charlotte continues to be the only true competitor to Atlanta for southeast US flying. Those two hubs can work very well together.

As costs rise to somewhere between US Airways and current American levels, Phoenix will likely be scaled back, but the operation there will allow American to pull back in LA a lot. There is no reason that those big regional jets should be flying around there. LA should really just focus on the big business markets that American needs to serve for its corporate clients.

Then there’s New York, where the biggest changes may occur. American is not a truly major competitor in New York anymore. I would actually suggest that American keep the slots needed for major business destinations, but then sell off the rest to JetBlue and enter into a stronger partnership. This is kind of funny, because had US Airways not just traded its La Guardia slots, it might be a different story.

Today, a full quarter of its JFK slots are used for Latin/Florida/Caribbean (and I’m excluding Miami hub flights from that). These are markets that are better served by JetBlue. There are also a bunch of one-off RJ flights feeding the small European bank. Kill ‘em. American simply is not going to compete with United or Delta in New York as they continue to bulk up, so it’s time to focus elsewhere while keeping only the routes that are commercially necessary.

But I’m getting off track. Maybe I’m off base with these changes, but the point is that when you get a smart management team like the current US Airways group in there, they will review everything and do what needs to be done. There isn’t much route overlap, but there is opportunity to optimize what’s out there without question. That’s exactly the kind of sandbox that these guys need. This team isn’t bound by tradition or legacy – they just want to make a better, more profitable airline. They’ll make the hard decisions that the current team likely won’t even consider.

A team with a track record like the current US Airways team will find plenty of money pouring in from the outside to help its cause, and that’s huge. If US Airways starts losing money again thanks to rising fuel, dropping demand, you name it, it doesn’t have much ability to raise more cash on its own. But it would have plenty of money being thrown at a merger with American, and that would give the combined airline some great breathing room.

Remember, these guys never put an airline into bankruptcy. They’ve relied on some skilled financial wizardry to make things work. Doug took over at America West right before September 11 and successfully steered the airline into a federal loan guarantee to keep the airline afloat. The feds made their money back on that one after the airline turned around. (I was quite proud to be a part of that.) Then they pulled US Airways from its last and final bankruptcy (it wasn’t going to escape alive) only to turn it into a modestly profitable success.

Just think what they could do with American.

Many, seem to think that this wouldn’t work because of the US Airways track record in dealing with labor. Oh please. The biggest labor problem at US Airways is that the East pilots went out on their own and trampled over the West thanks to their greater numbers. The issue is within the labor groups, not with management even though many like to point their fingers the wrong way.

A merger with American would fix that right up. The 5,000 US Airways pilots would be quickly outnumbered by the roughly 10,000 American pilots and there might actually be a chance at finding labor peace with a unified union running the show. (I said “a chance.” The American pilots have been pretty irrational in their own right.) But it’s not any worse with the US Airways folks in there than it is without. American is a mess today, and labor relations can’t get much worse. I’d say they could get better with a chance at stronger revenues (which means the potential for profit sharing) and a new team to sweep out the old baggage.

At the end of the day, the industry would end up with a leaner, meaner, and more competitive American Airlines. For travelers, it would mean a better network, undoubtedly a better onboard product, and just a better airline in general. It would add some of the strengths from the US Airways network along with a management not bound by any preconceived notions about what can and can’t be done. It would strengthen oneworld as a competitive alliance while putting a little dent in Star’s US coverage.

Is this even possible? I have no clue. We’ll see how the bankruptcy proceedings unfold. But I think it would be the best possible outcome. Now it’s your turn to rant about why I’m wrong . . .

93 Responses to Why I Want US Airways to Buy American

  1. Gary Leff says:

    Brett, I think your argument boils down to “a US acquisiton of AA gets the idiots who created the mess out of the drivers seat and puts a competent management team in place.” And that’s the best possible argument for US taking over AA — in terms of making AA a better airline (as an ongoing business concern) than it is today.

    That’s different, I think, from saying it’s the best possible move for US shareholders.Seems to me that US would do better to keep its lower costs, avoid the mess that requires fixing over at AA, and grow on its own (a much avoided and maligned strategy but one that allows more easily for profitable decision-making at the margin).

    If there was an argument that AA had tremendous assets and value just waiting to be released by competent management that might be another story but I’m not sure you make that argument convincingly. What exactly does US do to fix the cost problems that doesn’t just happen as a result of bankuptcy (the maginal value add from their management)? What exactly does US do to fix the revenue problems?

    It’s unclear that US assets are made more valuable by synergies with AA. It’s unclear that AA assets are made more valuable by synergies with US. And even when there are plausible arguments about those things they rarely bear fruit as promised.

    I agree the reason to do this would be that it puts better people in charge at AA. But the real relevant question, I think, is — IS THIS THE MOST SHARE VALUE MAXIMIZING THING THAT THE US MANAGEMENT TEAM CAN DO FOR US SHAREHOLDERS?

    • How exactly is US going to grow on its own? With this competent management team in place, I think they have been doing all that they can, but they are limited to who they are. With incredibly strong UA & DL carriers in the US market, it makes it very difficult for an airline like US to grow on its own. So, while they are turning a small profit, there isn’t much growth potential for them.

      AA is not going to go away, and this move COULD have massive growth potential and return on investment for US shareholders. Is it riskier, YES. But the management team has to weigh the risks and the potential rewards. Seeing as how they tried to buy DL and merge with UA both in bankruptcy, they think that the potential to grow US through merger/buyout is much more rewarding than risky.

      • FRANK says:

        Major Airlines’ Market Share: November 30, 2011

        United-Continental – 22.6%
        Delta – 20.8%
        American – 15.9%
        Southwest-AirTran – 12.1%
        US Airways – 7.3%
        Total – 78.7%

        US Airways-American – 23.2%
        United-Continental – 22.6%
        Delta – 20.8%
        Southwest-AirTran – 12.1%
        Total – 78.7%

        Source; USA Today Analysis of Data Provided By MIT Data Airline Project

    • Shane says:

      “What exactly does US do to fix the cost problems that doesn’t just happen as a result of bankuptcy”
      Remember that AA IS in bankruptcy right now, although my opinion is that it’s fairly weak based on the amount of assets they have, but that’s for another discussion.

      The biggest hits will be to labor and lease holders. If US were to come in and offer $1 more to lease holders than they would get from a reorganized AA, then the lease holders can compel the courts to allow the US purchase. US could decide in the process what priorities and expenses they would want to get rid of. Perhaps lessen the blow to pilots (to create goodwill and support for the merged company) in exchange for dumping Eagle, or divesting assets in NY or LA or other assets that US would not be intersted.

    • With all due respect to Gary Leff, I think the airline industry needs to shrink, not grow. A airline business plan based on growth is doomed to end in liquidation, unless that airline finds a profitable niche a la Allegiant and Spirit. That’s the nature of mature industries.

      People point to Southwest, but it took advantage of a bloated airline system with managements stuck in a regulated monopoly mindset. So it thrived. Now, even Southwest is shifting capacity to increase profitability, not growing. Southwest bought AirTran instead of growing in Atlanta. Those moves speak volumes.

      Looking at history, airlines have been awful at producing value. I believe that’s because they’ve chased growth and market share instead of profitability. If you doubt that, look at all of the major airlines that are no more: TWA, Eastern, PanAm, Braniff among others. As I wrote yesterday, one only has to look a few years back to what happened in the rail industry to see the outcome of the current airline mess. More consolidation is necessary, not less. At least the current airline managements have awakened to the real world.

    • CF says:

      Some great comments today, and this is going to take me awhile to get through everything.

      Gary, this has been a lot of fun going back and forth over the last couple of days. Let me respond to a couple points.

      That’s different, I think, from saying it’s the best possible move for US shareholders. Seems to me that US would do better to keep its lower costs, avoid the mess that requires fixing over at AA, and grow on its own (a much avoided and maligned strategy but one that allows more easily for profitable decision-making at the margin).

      US Airways has a big problem, and it’s that it can’t go back to the well for more cash. While the airline is working as it is now, what if oil goes up to $150 a barrel? Demand has been strong; what if it drops? There’s only so much that can be done, and US Airways just doesn’t have a lot of insurance left. So acquiring American would be great for US Airways shareholders in that it would give them a lot of cash and a bigger template for the management team to work its magic.

      If there was an argument that AA had tremendous assets and value just waiting to be released by competent management that might be another story but I’m not sure you make that argument convincingly. What exactly does US do to fix the cost problems that doesn’t just happen as a result of bankuptcy (the maginal value add from their management)? What exactly does US do to fix the revenue problems?

      Everything that US Airways would want to do can be fixed in bankruptcy. In fact, it has to be done in bankruptcy for the most part. The question is whether or not the management team in place is going to make the truly hard decisions. United was a great example of an airline that squandered bankruptcy. It gutted its labor contracts, but it actually did a fairly poor job of squeezing out other costs. I have more faith that the US Airways team would be able to take full advantage than I do with the American team.

      On the revenue side, it’s a matter of better route planning and revenue management. US Airways excels at that. American used to, but not anymore.

  2. So the bit I’m really confused about CF is:
    “you’d probably still see the headquarters in Dallas”
    “smart management team like the current US Airways group”

    If I’m the current US Airways management I don’t want to bring all the baggage of American’s middle management. I’m sure that there are effective people there, but I’d wager a small bet that the middle management is as much of the problem as the upper management in AA’s problems. I’d want to sweep them out however possible. Its possible to do a culture change with an existing company in an existing location, but its really hard, and if you’ve got a team that works why make them move and possibly not stay with the company? Premerger-CO and Premerger-UA are a different batch in my mind as UA already started to get its management fixed up before they merged, AA is in a completely different boat, and not even flying a plane like Premerger-UA was..

    • CF says:

      I imagine that in something like this, moving to DFW would be an important indicator that the airline was going to be more American than US Airways. It could help calm the nerves of current AA people, investors, and more. With United/Continental, it was a different story. United made the move to Chicago a requirement, and I think that’s too bad. But in this case, you want the bigger airline infrastructure, and you probably want a lot of the people at AA who know how to run a full service airline. I don’t know much about middle mgmt at American these days, but I get the feeling the biggest problems are at the top.

      • Well don’t you want the exact opposite? You want to send the message that the AWA guys are in charge to the employees and shareholders.

        I think AA is the most broken large airline since Premerger-USAirways. No one would’ve supported AWA buying US if they were keeping the HQ in VA.

        I see PMUA as once having been as broken as PMUS, but they got their house in a bit more order before jumping in with CO.

        If I was a lender supporting US buying AA, I’d want to know that the old AA was deader than a rusted broken up doornail.

        • CF says:

          I see it differently. With premerger US Airways, you had an airline that thought it was a big boy but really couldn’t compete. You needed to get rid of that mentality and turn it into an airline that could compete, an airline with more similarities to America West (except for the European operation).

          With American you have an an airline that absolutely can and should compete, but it’s just not doing it well right now. I think you need more of the existing American than you needed of the existing US Airways.

    • msnflier says:

      A brief aside on the location of the merged UA-CO’s headquarters in Chicago as opposed to Houston. You’re aware of where the sitting president is from, aren’t you? Enough said. :-)

  3. I am in violent agreement with you on this one. In fact, had I been a board member, I would have called Doug Parker, asked what his price to move was and paid it without any pause. Then I would have asked him to put together the US Airways team over in Fort Worth and get cracking on fixing that thing.

    The worst possible signal sent in the events of this week was elevating Tom Horton to Chairman & CEO of AA. There is a loud signal there. “We’ll cut costs!” there is absolutely no indication that anyone intends to go to work on, you know, earning *more* money.

    • Derek says:

      I agree. When you listen to the earnings calls, the markets seem to like and appreciate the US mgmt team. They seem to be straightforward and honest in their answers and this is why I think they can get whatever money they need in the markets to make this happen.

  4. Cranky, some have wondered what this scenario would do to the alliances that each of the current airlines are aligned with. I would assume that this scenario would dissolve the relationship between Star Alliance and US Airways, and help to strengthen OneWorld, by creating a more powerful AA.

    Others think that Star Alliance is the greatest of all time, and any airline would be stupid to leave Star Alliance no matter the circumstance.

    Can you speak to any of these “other” possible ramifications (alliances, frequent flyer programs, etc.) and how this merger/buyout would help/hurt either airline?

    • CF says:

      I see no way that American leaves oneworld, and I don’t think they’d be smart to. US Airways gets tremendous benefit from Star, but it could get that from oneworld as well. You’d undoubtedly see US Airways shifts from flying to places like Frankfurt and Munich in favor of London and Madrid more frequently, but that’s about the only changes needed.

      • Lou says:

        as a us airways FF, I’d prefer to stay in *A over oneworld. i haven’t done a direct comparison but *A feels like a stronger network.

  5. Not much more to add at this time, because Cranky has said it all. It is Doug Parker’s “manifest destiny” to lead one of the major US airlines, and that opportunity now seems to again be within his grasp. I’m sure he will do everything he can (at least everything rational) to achieve that goal. If given the chance, LCC management will rationalize AMR and restore it to its former glory and — this time — actually make it consistently profitable.

    The wildcard in all this is fuel. Current oil prices are nuts, and have nothing to do with fundamentals. Oil has become a pure financial play on Wall St — making it impossible to predict. If oil prices were to fall in 2012 (a distinct possibility, if not a probability) this could give AMR some breathing room, and perhaps make them think they can “do this on their own” and don’t need to make the tough changes that Parker would make. On the other hand, lower oil would probably make it easier for Parker to raise more capital, so he could afford to pay more. In other words, I think we all know that Parker is going after AMR, but what the outcome will be is hard to predict. That said, my money is on Parker to find a way to win.

  6. “”"”"Now it’s your turn to rant about why I’m wrong . . . “”"”"

    That last line is the greatest.

    No way you can be proven wrong yet since only the future will tell. Who knows maybe the day will come when AA will need to go the way of others and sell off pieces of itself. Sell off Latin American to someone, sell it’s LHR slots to someone else. Gee why did Carl Icahn just pop into my head…..lol

  7. Turbo says:

    If you’re looking to build an airline from scratch, why not start in New York? Why not take JetBlue’s brand equity and nice facility at JFK and build off that? Take the best of US Air and the best of AA and combine all three into the new JetBlue – it already has excellent penetration in the best US market and you’d get a chance to fly a product that can compete effectively against the duopoly of UAL and DAL? Make JetBlue a 2-class carrier on the lines of how AirTran successfully sold itself to biz fliers domestically and for all the international stuff take the best of AA’s offerings. Knit the network together and maybe downsize PHL and CLT and be the real alternative carrier to DAL and UAL. Complicated? Sure. But LCC + AMR = no material revenue advantage and an absolute hornet’s nest of labor that, as referenced, can ONLY be solved with the prospects of a genuinely competitive national airline that generates real revenue and has brand equity. There’s plenty of private equity cash that would provide plenty of cushion for such an ambitious three-way and there would be some DOJ concerns (but, honestly, not many – it’s a 2-horse race for the biggest accounts out there right now and AA is getting third prize in a contest where only the first two lines pay out). The Street loves Parker, likes JetBlue’s brand equity, and may think that part of AA (Dallas, Miami, Oneworld linkages) are worth saving, but that’s about it. Just throwing it out there…

    • Interesting theory, but I doubt you’d be able to get JetBlue’s owners to go along. LCC & AMR would like to have NYC’s feed, but I figure they’d rather leave that to JetBlue and do a codeshare/interline agreement.

    • FRANK says:

      downsize PHL?….why!!!!!

      By the numbers, US Airways’ Philadelphia hub effectively collects passenger traffic out of the Northern and Eastern United States to Europe, and generates more revenue to and from Europe each day than American does at either New York’s JFK or Chicago’s O’Hare airport.

    • CF says:

      I think this would be nearly impossible to pull off. JetBlue’s strength is its product and its crewmembers. It would be very difficult to roll out that produce to the entire new combined airline, and the crewmembers would be instantly diluted. I don’t see how the JetBlue brand of service survives. Instead, all you get is higher costs and you push people away to other airlines. JetBlue needs to stay on its own, I think.

  8. “Now it’s your turn to rant about why I’m wrong . . . ”

    That’s fine, except for one minor detail. I think you’re right.

    But I do have a slightly different view of the ultimate shape of the “new” American Airlines. I have no inside financial information so, of course, I could be absolutely wrong. But one thing I do know is that the current US Airways management has the courage to make the tough choices that will need to be made.

    So here goes:

    New York: I see it being restructured, not abandoned. I believe that New York can be profitable even if one’s the number three carrier. It’s the largest market in the U.S. by far. It’s not like Dallas or Phoenix. US swapped its LGA slots because its network was inferior. American’s is much stronger, with in-perimeter hubs to connect with. US Has no such hubs. The combined carrier at LGA would be quite strong. It serves most of the largest markets out of LGA. There may need to be some fine tuning, but more on that later.

    As for JFK, it could become a “deep” European / Middle Eastern (?) hub (I have no clue why there’s not an American flight from JFK to Tel Aviv for example), with multiple flights to the most important destinations. Keep only the most profitable international flying at JFK. Move the rest to PHL. I would beef up the feed from the hubs (i.e. replace RJs from ORD with mainline aircraft) and other cities (i.e. create a smaller, more focused PHL). I would use an interline agreement with jetBlue to add feed. I would downsize if my above scenario isn’t possible, but for purposes of this, I’m assuming it is.

    Philadelphia, on the other hand would be the “shallow” or wide ranging international hub; i.e. fewer daily flights (one or two) to more destinations with more domestic connections.

    As for DCA, adding American’s routes to US Airways would create a powerhouse. The 42 slots US is receiving from Delta may have to be divested. If possible, I would trade them back to Delta, or to jetBlue (or a combination) for New York slots.

    I agree Charlotte would be right sized to compliment DFW and MIA. American has coveted a southeastern hub for years. It will have one if this scenario comes to pass.

    Miami would also be right sized. But the direction will be up modestly.

    ORD has been the brunt of a lot of chatter on airline blogs. Many think it should be abandoned, but I think it should be retained with necessary capacity adjustments. Chicago is a large city with a lot of corporate headquarters. Both UAL and American should be able to make ORD work, even with Southwest at Midway.

    DFW could be downsized a bit, but why fool with it too much? I think there would have to be an easing of the Wright Amendment to allow Southwest to offer non-stop service to PHX, PHL and CLT at least.

    PHX, my home town, would be downsized roughly 10 – 15% more than it has, mostly, as Cranky points out, due to the higher costs that will be the result of this merger. I see PHX and DCA being roughly the same size when all is said and done (roughly 200 to 225 departures per day).

    As for LAX, I would make it the primary gateway to Asia. I realize LAX isn’t in the strongest geographical position, but it has a large population base. Like New York, I feel a carrier can be a strong number 2 or 3 at LAX and still do well. But I could be wrong.

    To sum up: CLT, ORD, DFW and PHX would become the prime domestic hubs of the “new” American, with modest international service. JFK / PHL (in tandem), MIA, and LAX the primary international gateways.

    One important question: Is the “new” American’s route structure strong enough to allow for costs that are roughly the same as UA’s or DL’s? Only time will tell.

    • The distance restrictions on flying from the Wright amendment lift in 2014. However, its replaced with a gate restriction, of which Southwest has most of the gates.

      • Nicholas, I understand that. I’m saying a temporary relaxation of the Wright Amendment may be needed in the specific cases I mentioned. US and AA are the only airlines serving these three routes at present. I doubt the government would want a monopoly on any of them, and they don’t fit well into other airlines’ route structures.

    • Sanjeev M says:

      WOW. I hadn’t liked the idea of a US-AA merger, but if this is the way to get new management, then lets go for it.

      @DesertGhost AA doesn’t fly to TLV due to some old issue with TWA staff. The internet will tell you more. Also probably the major winner out of such a deal would be AIRBUS. This solidifies the megaorder and maintains their loyal USA customer. I see plenty of AIRBUS financing coming to US like it did during their BK.

      JFK and PHL could be for this new carrier what EWR and IAD is for United. AA NEEDS to put time and effort in to New York though. However, PHL is way more congested than IAD. DCA is just free money.

      PHX will become the major western operation, so the DFW 8pm bank to the west coast will go down a bit. Idk what to do with LA. DL still struggles with its LA focus strategy.

      CLT will stay due to amazingly low costs. MIA will of course stay. ORD will stay, hopefully with some beefing up.

      Then AA can right-size with international 2-class and 3-class equipment like UA/CO have done.

  9. CF,

    Spot on! I’ve been saying the exact scenario you laid out was going to happen for 3 years, and about all I’ve gotten is a “you must have 9 heads” stare of shock.

    MJ

  10. Ray Uribe says:

    Other comments pretty much covers a lot of views, good and not so good. My only contribution is to set Cranky straight that American Airlines headquarters is in FORT WORTH, while Southwest Airlines is in DALLAS.

    • CF says:

      You’re right, Ray. I just got sloppy with that one, but I did mean to keep HQ where it is today, in Ft Worth.

  11. NYC Dude says:

    All I know is that if AA and US merge, them I’m moving my Executive Platinum-level business to UA or JB heck, even WN. I just don’t like US, sorry.

    But then again, I’d give NetJets 100% of my business if I could get my client to pay for it. :)

    • CF says:

      I don’t get that at all. Why wouldn’t you wait until you saw what changes were occurring at American first? Again, if US Airways takes over, it’s not going to turn the airline into US Airways. It’s going to run American like American should be run.

      • Cranky, Unless you know something that the BK Judge doesn’t, NO ONE can guarantee how a potential US AIR buy out of AA would look after the fact.It could turn out the opposite of what you say very easily.

  12. Cranky, as you say, it is anyones guess what the results of the AA Chapter 11 action will do to AA. My thinking is that the on-going labor problems at US AIR may undermine any merger plans as why would any sane person want to couple those never ending tong wars with the labor issues at AA? PLUS, never forget what the existing AA Union and management did to the TWA personnel after the “merger”. It turned out to be an employee massacure of the worst kind. AA was merciless to the TWA personnel. I do not see a clean future if there were to be a “merger”. It is a pipe dream to think otherwise. History has a way of repeating itself. My vote were be for the BK Court to not play with fate and let US AIR go its own way. They have enough problems of their own. Hopefully, AA will come out for the better after this BK action.

  13. AirBoss says:

    A great option for US. Not a solution for AA (and oneworle) competing with DL, UA (and their alliances).

  14. SAN Greg says:

    Why you are wrong? Easy: Customer service in Philadelphia. Redefines pathetic!

    • CF says:

      Philadelphia is far, FAR better than before the current team took over back in 2005. What they’ve done in that place is pretty remarkable.

  15. Lori Bond says:

    Why shutdown Eagle, per the sec filing they are making money at current market rates. They provide about 10 points on the loads for AA. I think their is value in Eagle, just not managed properly.

    • I’m not sure of the exact arrangement between AA and Eagle, but I’d bet that it is a capacity purchase agreement. Basically, AA pays Eagle a set price to fly the plane from point A to B if the plane is full or empty. AA sells all the seats and keeps all the money and profits, as well as the losses. AFAIK, there are other regional jet operators out there that can do the same thing at significantly reduced rates.

    • CF says:

      Nicholas is right. Eagle makes money at the expense of American. It’s just moving money from one hand to the other. The reality is that Eagle is expensive and there are other good operators out there who could do the job for less.

  16. Don says:

    Why not just have them buy JetBlue and do exactly what they do. Then they get 100% of the profits instead of a stronger interline. They would just have to get more employees. They already have the orders from Airbus coming.

    • Because part of JetBlue’s value proposition is the onboard product. AA couldn’t put PTVs on board all of their planes fast enough, and it’d be inefficient to keep the JetBlue fleet segregated. Not to mention I’m unsure if JetBlue would be profitable at anywhere near AA’s labor rates, or somewhere above theirs and below AA’s.

  17. Phill says:

    Cranky,
    I rarely think that what you write is completely false, but I’m calling you out on this one. I think you severely minimize the problems that US is having with labor and pilots and if AMR would be thrown into the mix with their own management-hating labor force it’d be nothing short of disastrous.

    Also, getting rid of AMR’s New York hubs? Outrageous. JFK’s international flying is still great for AMR (even after starting that bizarre Budapest route to try and content Malev…). Domestic is always full in and out of JFK for the routes they do have and LGA is just as good as any other base.

    Interesting times in the airline world…

    • CF says:

      We obviously disagree, but the one thing I will add is that just because an airplane is full doesn’t mean it’s making money. Load factor means nothing if you sell a bunch of cheap seats. I haven’t sat down and tried to dissect government numbers in awhile, but I would be surprised if AA was doing very well there.

  18. CP says:

    The part of the argument that perplexes me is why the on-board product would improve. I can acknowledge that US’ on-board product has been improving (i.e., it’s now been a year since I’ve been on a US plane with holes in the seats, as was common on the old “eastern half” fleet post-merger), but in both coach and first it is FAR behind AA’s offerings. This is especially true in first class. For instance, I recently flew a US flight in first from PHX-STL that departed PHX in the 6p (aka, dinner!) hour. The service on-board was a snack basket and drinks in plastic cups. A route like this gets much better service on AA in first. Why do you assume that US would adopt AA’s service standards and not its own, lower standards?

    • CF says:

      There’s no way US would keep its own lower standards, because American would get blown out of the water very quickly. And they know that. US Airways has to keep a tighter grip on costs because it can’t generate as much revenue with its hubs. Give the airline higher revenue and it can do more with amenities.

  19. One place that might truly benefit from this is, funny enough, Dallas & Southwest Airlines. AA has been the been the BIGGEST funder/supporter of the Wright Amendment by far. The other big supporter is the city of Fort Worth, since AA is technically HQ there. If AA is actively trying to shrink it’s DFW operation (which they probably will do some of), WN may have a pretty good case to legislators that they are ready to pick up the slack. US/AA may also want some gates at Love Field for business travelers to other hubs, thus try to get gate restrictions lifted. Jet Blue was looking at Love Field for a while until it got gate restricted, so if it opens back up, they may revisit again. A weaker AA at DFW would be good for competition in the region, for sure!

  20. Jeff says:

    I would not like this merger to happen purely for selfish reasons. It would decrease my options of flying direct PHX-DFW to one airline instead of two. Southwest does not fly direct because of the stupid Wright Amendment. It would also mean the loss of the Corporate Headquarters in Tempe which would mean more lost jobs in an area that has already been hit hard by the economic collapse.

  21. PF says:

    In reference to “undoubtedly a better onboard product,” – for US or AA? I find AA service in F to be among the best, and Y isn’t bad (except everything including peanuts being “for sale”) – AA Y will serve a full can of soda on a flight, (which BTW is more than Eagle – 1 service, 1 cup of soda, 3 hour flight).

  22. Mav6996 says:

    US Airways, no pun intended, comes with too much baggage. I’m not sure that the 5000 US Airways pilots would acquiesce to the will of the 10000 American pilots in a merger as easily as your analysis portrays it. While US Airways has cobbled together a profitable airline, there’s still a bit of animosity between the two groups. I don’t think that would go away in a possible merger and might actually intensify with the American pilots.

    I would be more inclined to favor a tie up of American with JetBlue. The advantages are a younger pilot base, a strong New York presence and the young Airbus fleet that will soon be in common with American’s fleet. With that, any integration of American with JetBlue would be much less painful than with US Airways.

    My view for the medium-term, is that there will be even further consolidation in the industry (e.g. Alaska/Hawaiian or maybe Republic/Southwest). Longer-term though, is the possibility of world governments relaxing foreign ownership restrictions which will give rise to trans-national airlines. This may seem impossible now given historic US restrictions on airline ownership. But given the current state of the word economy and seeing how the Fed is supporting European banks, there is the possibility of allowing trans-national mergers to prop up the world economy as well as counter-balance the rise of Asian economies.

    • I’m really curious what percentage of the East pilots are fed up with their new union and just want to get a raise and go on? I’d be interested in seeing the results of a truly anonymous survey among the pilots. I kinda think a few rabble rousers got everyone whipped up and sold them a bill of goods they can’t deliver on.

      AFAIK AA has a completely separate pilots union. So that’s be interesting.

    • David M says:

      The US East pilots wouldn’t have a choice. With double their number at AA, plus the West pilots likely siding with AA pilots against East, I can’t see how USAPA (US Airline Pilots Association) wins a vote to continue representation. Pilots at a merged AA/US would most like be represented by APA (Allied Pilots Association), the current AA pilots union, though I could see ALPA (Air Line Pilots Association, International, representing pilots at 37 US and Canadian airlines, and represented America West and pre-merger US Airways pilots) making a play for them.

  23. Cactus Jack says:

    Karma is a B! The pompous East pilots will get a chance to experience what they did to AWA pilots when suddenly they are so out numbered by AA!!! Poetic justice!

  24. Jim says:

    I don’t see how you can call being bailed out by the federal government “financial wizardry”.

    Also, I don’t see any reason why labor unions at US and AA would be able to agree on anything. Just because US pilots would be outnumbered by AA doesn’t mean that they have to agree to what AA’s pilots want. In fact, as you say in your article, the whole reason US and America West’s pilots couldn’t come to an agreement was because US had far more pilots, who then decided to trample over America West’s union. Who is to say AA’s pilots won’t do the same?

    • Jim, the US pilots integration was exceptionally messy. I won’t rehash it but go look up Nicolau award for the messy details. The crux of the matter is they were originally from the same union and the larger pilot group felt shafted an formed their own union to represent everyone, resulting in a huge mess.

      When unions are different in an airline merger the employees vote which union represents them. Since there are more AA pilots than US pilots the AA pilots union likely will win.

    • CF says:

      The financial wizardry was in being able to put together a case in a very short amount of time that got the airline the financial backing from the government. Doug Parker didn’t put the airline into that position, but he quickly was able to build a story that made sense. Then it was a very quick turnaround, and the government made good money on it. United had years to put together a case for the feds, and it was shot down – never was able to get it.

      As for the pilots, you’re right, it could theoretically happen in any merger, but I just don’t see how it would. With US Airways, the east pilots decided to ignore the standard seniority integration procedures and threw away the binding arbitration results. That has left the pilots in a legal limbo that even had the company going to the court to ask what it should do. I just don’t see the APA pilots doing something that stupid.

  25. drybean says:

    Brett is obviosly too close to US Airways to write objectively about a possile merger and who survives, but some of what he says makes sense. However under Brett’s scenario, dozens of AE cities would lose air service… more than two dozen in Texas alone. And something Brett needs to know, AA’s headdquarters is in Fort Worth (where the West begins) and NOT in Dallas (where the East peters out)…

    • AirBoss says:

      Not that it matters much to any but the old money Fo-uht Wuth crowd and the all-hat-no-cattle nouveau-Dallasites.

    • Just because AE is either sold off or closed, doesn’t mean that the 2 dozen cities in Texas will lose air service. I can only think of a slight few that only have AE air service in Texas. Plus if the routes are profitable, US/AA or someone else will come in and fly them (like Sky West flying for them, etc.). The airline shouldn’t be flying unprofitable routes, as this LOSES money. If the feds or city want to subsidize it, fine, but it is not an airline’s responsibility to provide service on a route that doesn’t make money. And if it does make money, someone will fly it.

    • CF says:

      Please explain why it’s so obvious that I’m too close to US Airways. I think the real problem is that you aren’t quite understanding what I’m suggesting. As AirlineDorkDerek says, I’m not suggesting ending service to small cities. I’m suggesting that there is a much more efficient way to serve those cities with regional service and it doesn’t involve Eagle.

      • drybean says:

        I gleaned that from the overall slant of the article, not your justified pride in helping US Air survive ” The feds made their money back on that one after the airline turned around. (I was quite proud to be a part of that.) ” . Also the glowing terms in which you descirbe Doug Parker, I felt as if you were saying US can do no wrong and AA does everything wrong. This was not your normal fair and balanced piece. Acknowledging Fort Worth as AA’s HQ is your first step… now if you can learn to say, “Foat Wuth.. I luv you.”

        • CF says:

          Fair and balanced?! You must not be a frequent reader, because none of my articles are fair and balanced. This is an opinion site, and consequently everything here is what I think. This isn’t a straight news site – you can go elsewhere for that.

          Your obsession with Dallas vs Ft Worth is completely irrelevant to the issue at hand, but you can look to see that I’ve already fixed it in the post and addressed it from an earlier comment that someone else left.

  26. akira says:

    Hope I’m not too late to join the party. This makes me wonder, when Parker was heralding “one merger left in the industry” last summer, if it was an open invitation for AA to hurry up and declare bankruptcy. If there is UA/DL/AA left as merger partners for US, I don’t think it takes too much analysis to say UA/DL do not need any more scale with a merger, even in the medium/long-term considering the quantity of their hubs. And AA bringing in an Airbus order while previously being all Boeing…hmm. Yes, dumb spectulation, but throwing it there for craps and giggles.

    I also wonder how effective their network would be. Yes, they would be the world’s largest airline by a decent enough margin, but let’s not forget that US is predominantly domestic with some Euro flying and a sliver of Caribbean / Latin. You’re not going to get a lot of mileage being being to largest airline going at it with a pumped up WN clawing at your back. UA and DL leverage their size well with extensive international operations, whereas US/AA would need a beefy long-haul fleet order if it wanted to play in that realm and that record shattering 737/A320 order placed by AA isn’t going to get them there.

    • CF says:

      Never too late to join the party! I think it’s been pretty clear that Doug had his eyes on AA as the most logical possibility. It wouldn’t happen without bankruptcy, so now it’s his time to see if he can make it happen. With US Airways, I don’t think there’s an urgency about it, and I do think it could fit into Delta or United at some point. Probably not as a whole, but sold off in parts and split up (potentially). I am also just about positive the Airbus order at AA had nothing to do with US Airways. That was just American playing the two off each other in order to get a really cheap deal.

  27. Eric says:

    The conventional wisdom on The Street and industry blogosphere is that US and AA are destined for each other…and somehow B6 will mesh into the mix. While I agree that Dougie and Scott would be the first string team to fix this disAAster, I still do not see how the network synergies work.

    Lets say we go with the JFK/PHL hypothetical domestic/European split stream mentioned above. Then you have the DCA megafocus just down I-95 (and lets be real, the DOJ is going to require allot of slot divestment). Further down the road, you have CLT…which as CF points out, the only ATLernate hub in the SE. Then the MIA intercontinental nexus a mere 2 hr block time south of CLT. That is ALLOT of coverage in the east with hubs and focus cities fighting for similar domestic/European/Latin American (and someday African) traffic flows.

    The western end is messy but for different reasons. We know LAX is a large, diverse and wealthy market. Only problem is where it sits on the map in relation to other US population centers as well as Asia and Latin economic centers. There is some connectivity where LAX makes sense, but it is limited…and you have 3 carriers fighting over that relatively small market. I strongly believe the key to success at LAX is: if you cant make it work on O&D, don’t do it. AA/MQ just announced they are ending the BOI spoke on their less than 6 month old LAX build up announced this spring. I suspect there will be more drops to come. Then there is PHX just 1 hr block time away….slightly better in terms of location…but no LA basin in terms of local economic activity.

    • CF says:

      Here’s the thing about hubs – it doesn’t matter what your coverage looks like in terms of geographical spread but rather how strong the local markets are. St Louis looked good to American, but it’s a bad local market. We’ve seen all those bad local markets disappear as hubs.

      So AA would end up with hubs near each other, but they’re all strong local markets. (Charlotte is a little different in that it has more connecting traffic but it’s from higher dollar cities with little competition.) So I think it works quite nicely, regardless of the distance between.

  28. Bill Hough says:

    On this issue, I find myself agreeing with Michael Boyd, who writes in his analysis:

    “US Airways, a fine operator, does not offer much to the AA system. The Phoenix hub is not particularly additive to AA, the PHL hub is competitive with the AA JFK operation, and CLT would mainly offer access to more small markets – which are difficult to serve economically. AA already as access to traffic at most mid-size and larger markets in the Deep South. As for feed – much of the international markets at CLT would compete with AA service at ORD, JFK, and MIA. The argument that CLT “would give AA access to the South” sounds appealing, but is largely bogus.”

    This is part of an 11-page analysis, which I suggest you read:
    http://www.aviationplanning.com/Images/AMR%20Bankruptcy%20-%20Time%20For%20Reality.pdf

  29. Eric says:

    I agree Brett…STL and MEM are ideal places on a map…but with weak local economies they are unsustainable.

    I am looking at the US/AA hub issue as an aggregate: it just seems to me that you would have a combined entity competing with itself in the east. In the west you get one anchor with ALLOT of competition for premium dollars (domestic and foreign) on one end and another with LCC competition/so-so yields and a local economy that is known for wild boom/bust gyrations.

  30. MeanMeosh says:

    The only thing I still don’t really get is the issue of service levels. Cranky, you tried to explain in one of the comments, but I’m slow and not completely following. It seems like you’re saying that US would up its service levels to match those of AA. Wouldn’t that blow US’s existing cost structure out of the water? Or would you have this weird “airline within an airline” thing where the “legacy” US continues as a hybrid full-service/LCC while AA continues more or less unchanged? That just seems like a disAAster waiting to happen.

    • CF says:

      You would have to bring service levels up toward American standards (or something like that) across the fleet. Yes, costs would rise, but that’s why you’d see Phoenix shrink and you’d see some Charlotte flights moved out (I assume). Some marginal routes wouldn’t make it, but overall, the revenue the airline generates as a combined entity would be much higher.

  31. tharanga says:

    Besides HP, who actually ended up receiving federal govt aid after 9/11? I know not everybody ended up getting it, that wanted it.

    • CF says:

      America West and US Airways both received it as did Frontier, World Airways, ATA, and Aloha. I believe the ATA and Aloha ones were the only ones that lost money. A total of $1.6 billion in guarantees were issued, and in the end, the feds made $300m for taxpayers on the program.

      United was rejected twice for the guarantee, and I know several others were rejected but I don’t remember who exactly.

  32. Ed Kelty says:

    Nobody has mentioned the possibility of merging two independently viable airlines, i.e., US with Alaska. That would create a route system from Europe to Hawaii.

    Of course, that doesn’t solve the problem of what to do with AA which provides some competition for UA and DL.

  33. Graham says:

    As a former AA elite, and a current US elite, this really would be the best of both worlds. However, while I agree with the fact that “American’s labor trouble couldn’t get worse so why not merge” argument, I wonder how Doug and team would fix it. Dealing with labor hasn’t been US’s strong suit that I’ve seen, so I wonder how ready they would be to take on even larger headaches.

    Employees are the keys to a successful airline. More than planes or product. Employees and how they treat you retain elites and create new customers. So I would love to know how they plan to streamline these employee groups into one big family.

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  37. kevin says:

    brett,everything you said is exactly on,when you look of the usair of old,as recently a three years ago,not sure who got fired and who got hired,but the remarkable turn around the last three years is top notch,just look at there website,look at the new things they are either adding or changing,especially the food,i compliment usair,and your right usair would be a great fit for american

  38. Bob says:

    Bret, what do you think would happen to the PHL hub? I am a US Airways flyer, and I would love to see a merger, especially since the AA pilots are backing it.

    • CF says:

      It’s hard to know what would happen in each individual hub, but there should be a solid place for Philly.

  39. Scott Dixon says:

    I was looking at this comment again now that a US/AA merger seems the most likely scenario. The major “unknown” issue that you mentioned in this blog has apparently been resolved with the AA and US pilots agreeing to a memorandum of understanding. I think this union would be a win-win as you outline. I wonder if they might try to compete in LA and NYC, rather than pull back as you suggest, in order to attract more premium travelers. I’m not necessarily saying it would be a successful effort, but I wonder if the new largest airline US/AA would just cede the 2 largest markets to its competitors? Not sure about that one. I also note that UA/AA would have hubs in 6 cities: PHL, CLT, MIA, DFW, ORD, & PHX, with a focus city at DCA and perhaps LAX. UA has hubs in 7/9 cities, the extra 2 being Tokyo and Guamand plus LAX as a focus city. DL has hubs in 7/9 cities, the extra 2 being Tokyo and Paris. What do you think about the relative strengths of the hubs of the new “BIG 3″ should UA/AA combine?

    • CF says:

      I wonder if they might try to compete in LA and NYC, rather than pull back as you suggest

      There’s no reason to think they can’t do both. There are key long haul markets that American can and does serve well from both cities. There are also some key shorter haul destinations that matter. But American is never going to be able to serve the broad number of destinations the way Delta and United can. So they can pull back and focus on the markets that really matter if they so choose.

      Also, I assume in the last sentence you mean should US/AA combine, right? The clear problem is over the Pacific. US/AA doesn’t have the great east coast transatlantic hubs like UA/DL but Philly is way better than what AA has today. And of course, US/AA dominates going South. But the Pacific is still somewhat weak, and there’s not much that can change that from within the US unless American somehow pulls a coup and gets Alaska away from Delta.

  40. CF you make some good points. And yes I did mean US/AA (not UA/AA). Domestically AA will have a much stronger network after combined with US. I’m assuming they will have the largest share of the domestic market. Moving to international, as you did, Pacific will definitely be their big weak spot. Getting Alaska Air down the road would definitely boost their presence in Hawaii and would be a big boost with their domestic network in the west. UA has the strongest network of the big 3, I believe, out west. The west is also Delta’s weakest area as they only have their mid-sized hub in tiny Salt Lake City, and a few commuter destinations in the upper plains via their hub in MSP. So looking at the big 3, AA/US and Delta would be very strong in the East, and United would be strongest in the West. Hmmm.

  41. So the topic has been brought up: NEXT MOVES, assuming AA/US happens. The remaining second tier airlines (other than Southwest) are Alaska Air, Frontier, and Jet Blue. Alaska Air, IMHO, would be a coup for Delta. Delta would now be #3 and its network out west is the weakest of the new big 3, I believe. They have the strong Pacific network and are building a mini Asian gateway at Seattle, Alaska’s biggest hub, so it would be a natural match to get the full benefit of that feed beyond the alliance they have with Alaska right now. It would have additional strategic value and fit/feed for Delta’s network, beyond the scale benefits. For AA/US I see less of a benefit other than bolstering their overall size/scale and network domestically. Besides, Alaska is already quite profitable and low cost, so there might actually be a reduction in overall profitability (adding together AA/US profit with Alaska’s profit at the time of such a combination if AA/US were to buy Alaska Air a few years from now. Delta also is in the best position operationally since they are pretty much done with operational issues from their last merger, while UA is still integrating Continental and of course AA/US hasn’t even happened yet. Looking at Frontier and Jet Blue, Frontier would of course be a good possibility for both Delta and AA/US, but I’m not sure of their situation with Republic since that company bought Frontier so recently. With Jet Blue, they would certainly be a boost for AA/US in New York and Boston but I just don’t see that happening in the short term. What about Delta/Jet Blue? Wouldn’t JB’s domestic feed at JFK be a natural for Delta?

    • D-ROCK says:

      I doubt that AS or B6 are necessarily trying to merge or be bought…They are good at what they do and are profitable… I think after the US/AA merger things will die down a bit. You will have the big 3 of UA, AA, and DL… The niche carriers HA, AS, B6… Southwest still trying to pretend to be a LCC…and the low cost carriers F9, NK, G4. F9 will probably be bought by somebody, but everything else will settle into where the market needs to be. (Who the heck knows what will happen with VX) But I doubt anything happens regarding AS or B6.

      • AirBoss says:

        B6 is vulnerable for its low valuation and failure to perform for shareholders for more than five years. By contrast, look at AS’ stellar performance.

        • Good points by both D-ROCK & AirBoss. Regarding the comments that neither AS/Alaska or B6/Jet Blue are trying to be bought, one could argue AA has not wanted to merge or be bought, either, yet it’s apparently about to be bought by a smalller airline US. Unless any of the remaining airlines are privately held or have some other legal/operational issue preventing a merger, I’d say just about any airline is up for grabs, especially since after going thru their respective bankruptcies the big legacy airlines have cut their unit costs so that they are much nearer that of the remaining smaller airlines. DL has done a pretty good job lately on performance and profitability and is not so heavily unionized similar to most of the remaining smaller airlines. UA still has a ways to go with its issues. I agree with you about WN/Soutwest…not really a low-cost carrier anymore. Out of STL, WN’s fares are sky high and their fares are the same in most cities they serve these days. Not sure about all the airline codes u mentioned…I know F9/Frontier. I’m assuming VX is Virgin America…I agree that airline is on shaky ground. Interestingly its CEO David Cush used to be AA’s VP/St. Louis hub not long before he got hired by Virgin. Just looked up the codes: NK/Spirit is certainly making some moves. Quite aggressive of it to go up against AA at DFW, but Spirit’s cost structure and business model are so different than that of AA. G4/Allegiant also appears to be doing well. Very niche in its choice of airport combinations and also very low cost. Isn’t Spirit closely held?

        • OK, the AA/US merger is pretty much a sure thing! News reports tonight are that the boards of both airlines approved the merger and tomorrow/Thursday there will be an announcement. This brings me back to what is going to be the next airline merger in the USA? I agree with AirBoss: B6/Jet Blue is ripe for takeover. Low valuation and declining route performance. I see Delta buying that airline. It would be relatively easy because if anything Jet Blue is even less unionized than Delta. Only problem might be that the government might make them shed a few routes at JFK. Looking solely at route networks, a Delta/Alaska Air combination would make sense since Delta is weak out west, and AK Air’s Seattle hub would tie into Delta’s recent international flight expansion there. IMHO I think United will still have its hands full for awhile with its UA/CO merger, but if no mergers happen for a year or two, either Jet Blue or Alaska Air would be possible for UA. They’d have quite a presence out West if they picked up Alaska Air! Having all those flights from Jet Blue’s hubs with competing flights out of UA’s huge Newark hub might not make as much sense for them, however, I guess one could make a similar argument about Delta’s La Guardia domestic hub competing with Jet Blue’s hub at JFK.

  42. There were a few comments here about St. Louis and AA’s hub there which they inherited when they bought TWA. I think they bought TWA mostly for its planes and to become more competitive at JFK and to Europe. At the time they said that STL was a good alternative “reliever” connecting airport to ORD since that hub was so congested and slot restricted, lots of air traffic delays, but they bought TWA just a few months before 9/11, which could not have been predicted. Then post 9/11 air traffic at ORD and everywhere took years to recover, so congestion at ORD was far less of an issue. STL as a hub by itself was/is a very good entity for the right airline. STL is the 18th largest metro area in the country, almost 3 million residents, and is centrally located, plus has a good business market. All good for sustaining a hub. Slow growth or bad economy in STL or any city makes a difference but not THAT much…it’s not like STL’s economy suddenly shrank 25% and suddenly made the TWA hub unsustainable. That didn’t happen, and STL is still a much larger metro area than US hub city Charlotte as well as DL’s Memphis, Cincinnati and SLC, while more centrally located and fewer winter weather problems than DL’s MSP and UA’s Cleveland, both of which are the same size/population as STL. Denver (rank #21) is slightly smaller than STL. If you look at the top 20 metro areas, the only ones without a hub besides STL are Tampa, San Diego, and Baltimore, which all are about the same size as STL. Tampa and SAN are both tucked in the corner of the country geographically, and therefore would make bad hubs. Baltimore is on the east edge of the continent, again bad for connections, and is already one of Southwest’s largest cities, plus it’s practically a suburb of Wash DC which has UA’s hub at IAD and US’s hub at DCA. Bottom line, St. Louis is the best hub city candidate in the USA currently without a hub. Not necessarily saying it would be a smart move for some airline to establish a hub there. I’m just arguing that a hub there would/could be sustainable under the right conditions. IMHO, and from what I read, AA dropped STL because it’s too near its O’Hare hub. AA’s O’Hare hub was smaller than UA’s hub there, and AA wanted a bigger slice of the giant Chicago market, so they moved dozens of former TWA planes (and flights) to ORD, plus AA also wanted to bolster DFW, so dozens of old TWA planes were moved there, too. IIRC, both ORD and DFW each gained about 75+ daily flights while STL lost 150+. AA has a bigger uphill battle having to compete against UA at ORD, plus operational issues with more congestion and weather delays at ORD, but to AA a Chicago passenger was psychologically worth more to them than a STL passenger was, even though they could probably make more on the STL passenger since they could charge more there due to AA’s dominance at that airport (before de-hubbing). IF any airline were to establish a hub or focus city in STL, I’d say Delta is the best match, or perhaps one of the secondary airlines such as Alaska, Frontier or Jet Blue. Southwest has been expanding @ STL lately and has almost 100 daily flights, making it one of their top 10 cities, but not too much connecting traffic due to their point-to-point route structure. I think any of these candidates could gain some share and scale by making STL a focus city with perhaps 150-200 daily flights. The business community and traveling public in STL has to deal with a mish-mash of airlines so they can’t efficiently build up frequent flier points anymore. A focus city or mini-hug in STL would gain lots of new frequent flier members and business/leisure traffic for the airline making that decision, while offering better connections geographically in many cases for connecting flights on that airline. STL has 3 underutilized main runways and dozens of unused gates. For DL, a focus city or mini-hub at STL would have much better local feed than it has at MEM, CVG or SLC. As the big airlines continue merging, we’re seeing more cases where their hubs are nearer each other geographically than they had just a few years ago. A hub in both CHI and nearby STL may have seemed silly to AA 10 years ago when they slashed the size of STL, leaving AA with just 3 main domestic hubs spread far apart geographically (ORD, DFW and MIA), but if AA/US combine the big 3 will all have 7+ domestic hubs, often situated close to each other.

    • I just found some comments in a very interesting article on dallasnews.com about why AA dismantled its STL hub after buying TWA. Pretty much goes in line with my comments above that 9/11 left AA with less need for its new STL hub. The excerpt below is from this link: http://www.dallasnews.com/business/airline-industry/20130126-american-airlines-battles-a-history-of-unsuccessful-mergers.ece

      “….(Swelbar, a research engineer at the Massachusetts Institute of Technology?s International Center for Air Transportation, said American had been looking for a way to relieve its overcrowded hub at Chicago?s O?Hare International Airport, where nearly 40 percent of American?s flights had arrived at least 15 minutes late in June, July and August 2000.

      Swelbar described it as ?the summer from hell.?

      ?The congestion at O?Hare was significant. And I think American was looking at something strategic to do here to potentially offload some of the pressure on O?Hare to restore its operations to respectable levels,? he said. ?Then we have Sept. 11, which is a demand shock. And all the sudden, I don?t have the same need for a hub that bypasses a congested area like I did the day before.?

      • I was re-reading the very informative article I quoted above, http://www.dallasnews.com/business/airline-industry/20130126-american-airlines-battles-a-history-of-unsuccessful-mergers.ece and noticed some interesting facts about AA’s past hubs and fleet size. Then I looked at AA’s past 10-K statements filed with the SEC and it’s interesting to see how their fleet has shrunk to less now (605 per Wikipedia, 608 per its 10-K of 12/31/11) than it had way back in 1992, when AA had 672 planes in its fleet.

        Looking at AA’s fleet numbers from past 10-K’s for recent years compared to what it had just before and after its TWA acquisition: On 12/31/2000, right before buying TWA, AA had 717 planes; TWA had 192 planes. So 717+192=909 as of Feb 2001. By 12/31/02, AA was down to 819; By 12/31/10, it was down to 620, and by 12/31/11, down to 608. So AA has about 65 fewer planes than it had back in 1992, BEFORE AA bought TWA’s almost 200 planes. US Airways had 340 planes as of 12/31/11, so a combined AA/US will have almost 950 planes.

        The article above says: “Three times since 1986, American has merged with another airline. All three times, American had little left to show for the deals within a few years.” The article refers to AA’s purchase of AirCal in 1986, Reno Air Inc. in 1988, and TWA in early 2001.

        Interestingly, AA has had a terrible track record for its newer hubs it developed or purchased: Nashville, Raleigh-Durham, San Jose and San Juan developed in the 1980′s, and St. Louis, purchased with TWA in 2001. AA has since closed all 5 of these hubs. STL was the largest, with over 400 flights when AA purchased TWA in 2011.

        Wikipedia lists AA’s current large hubs, (with # of daily flights as of Aug 2012) as: DFW (764 flights); Chicago ORD (501); Miami (294); LAX (159); NY LGA (102) and NY JFK: (86), the latter two hardly large enough to be considered a hub. JFK could, however, be considered a connecting hub for its European flights, IMHO.

  43. I have to doubt strongly that AA/US will be the last domestic airline merger for the rest of time. So which one will be next, and who will be the buyer? Sounds like AirBoss thinks B6/Jet Blue might be the next? Delta is the most likely buyer for that airline, INHO. Another point I’d like to make: just because Alaska or Jet Blue are highly rated by fliers or profitable does not completely rule them out as a candidate for a buyout. IIRC, America West was highly rated before US merged with them, as was Continental before merging with United. And I think those airlines weren’t exactly on the brink of liquidation, either. Not quite so sure about America West, tho. Same for Northwest before DL bought them. May not have been top-rated by customers, but also not exactly on death’s door, either. These airlines all had strategic value for the buyer beyond their profitability and/or popularity, or lack of either/both. Just my humble 2 cents worth here.

  44. Oops, I must correct myself after re-reading AirBoss’ latest post. It sounds like we have a vote for F9/Frontier being the next airline that’s bought, not B6/Jet Blue. My apologies for initially mis-reading AirBoss’ post. That’s what I get for scanning quickly instead of reading carefully. AirBoss, your arguments have a lot of merit. But what about Republic having bought Frontier so recently? Are they trying to unload Frontier already? Or does it not really matter? Wouldn’t there be possible issues with Republic’s status as a commuter provider for some of the big 3 airlines? Or would it actually help because a buyer could raise cash by divesting Republic’s commuter operations? I haven’t followed it very closely.

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