Topic of the Week: What About Eagle?

American, Mergers/Finance

There’s plenty of talk about the American/US Airways merger, but there simply isn’t much at all about what will happen in the regional world. American Eagle remains in limbo. I spoke with Andrew Nocella, SVP of Marketing and Planning for US Airways about what might happen with Eagle, and he said that no decisions had been made, of course. That being said, he did note that he “liked the balanced model in terms of having both” owned and partner regional airlines. Meanwhile, there’s more to Eagle than just flying airplanes. It is now a pretty large ground handler that even handles flights for competitors like United. So what do you think will become of Eagle?

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28 comments on “Topic of the Week: What About Eagle?

  1. Thanks for bringing this up, Cranky. I had been asking the opinion of you and others, now here are some of my thoughts. First off, I think as a brand, Eagle definitely survives. After all, American Express is already taken, and the Eagle brand name is strong. As for the company and operations, I think that the fact that US owns 2 of its own regionals (PSA and Piedmont) works in favor of Eagle not being spun off entirely, though I think it is possible that chunks will be sold off. I would not be surprised if part of Eagle (at least the east coast operation) gets merged into PSA’s operation. However the DFW and ORD operations are a little trickier to guess at. I think that US could either expand Eagle+PSA to cover these 2 bases, or keep Eagle (in a renamed version) operating there as a seperate entity. I think it would be less likely to fully outsource regional flying at both of those hubs, at least to start. I think the west coast remains outsources as it is now with both airlines.

    1. I’m not sure if the east coast operation gets merged. This probably all comes down to labor rates. If PSA’s and American Eagle’s labor rates are similar they’ll fold the CRJs into PSA since it makes sense. (The precedent for this is Allegheny being dissolved and transferred into Piedmont, which merged around airplane types.)

      Plus didn’t AE get their labor costs in line in bankruptcy?

      Oh, and AE’s new name? US Air (or US Airways.)

    2. Good point that US has experience with owning its own regionals…

      At the end of the day, it is about cost and value. Hopefully a creative solution can be found.

      I wonder if they will find a more…interesting…role for the wholly owned regionals. If CLT grows over MIA, it is possible that MIA could grow its regionals significantly to handle a lot of o/d mia-carribbean routes. Perhaps there is a way to rebrand or carve out some differentiation for those flights over the outsourced ones.

  2. The ground handling and flying businesses can be separated. The ground handling business could be then spun off for a handy profit. The flying component would have to be competitive.

  3. Cranky you should do an article on how at the end of the day the Airline Industry is a terrible business to be in. Big money losers? Just look at their stocks prices.. (sorry if you have already done one and I missed it)

    If American Eagle has lost more money over time than it has made then it should be sold off. American/US Airways has to be run “lean and mean” or they will just fail again. 2 Bad airlines don’t make a right 1.

    1. Tom, that money losing history is much of the reason for all of the consolidation we’ve seen. Fewer, more stable carriers should bring about a new era of profitability for all of the airlines. It’s worked that way for the freight railroads, that went through the same kind of turmoil for much of their history. If that history repeats itself (and there’s no reason to believe it won’t) we’re in for a much more stable (and boringly profitable) airline industry going forward. It won’t be nearly as interesting, but it will be a far better thing for the traveling public overall.

      1. How do the larger legacy airlines (even if we end up with 3) become constantly profitable with the smaller low lost airlines (Spirit, Jet Blue, Alaska, Hawaiian, Frontier, etc) always under cutting them on price?

        Maybe the large legacy carriers mainly fly international and business travelers and leave the smaller carriers for the domestic leisure traveler.

        1. The simple answer is sheer size. If you combine jetBlue with Alaska, it’s about the size of US Airways (1/3rd the size of the “new” American). And if these carriers keep fares too low, they’ll go bankrupt (Virgin America is struggling to make a profit). ULCCs and other the smaller carriers fill niches that the majors can’t or won’t. And don’t forget, Southwest isn’t always the low fare leader it used to be. It’s a very different airline world than it was eight years ago when HP bought US.

        2. Agree with DesertGhost…and your initial idea.

          Size and Scope. Scope: Corporate contracts allow for a lot of profitable travel and put butts in seats without too much marketing expense and constant fight for new customers. International markets allow for high revenue/mile and First and Business are great revenue upgrades.

          As for size, it becomes a virtuous cycle of “if you serve more cities, I will fly you more. If I fly you more, I will become less price sensitive to you, and you will be able to serve more cities as higher ticket price.” A lot of small cities connecting in hubs on RJs have high fares. There is not enough traffic for Jetblue or WN or others to come in. For the 50 total fliers per day, there is no way the LCCs could serve the full itinerary. The regional model works if the hub is large enough to serve ALL potential pax. So the LCCs wont be able to easily match it.

          Now that legacies are concentrating on building fortress hubs and profit over marketshare, there is a willingness to not bitterly compete for every passenger, but only ones who make money. This, pared with scale, allows the big guys to post massive profits, while smaller carriers cant. The truth is, the margins aren’t that different. But the revenue/ASMs, etc. are just so different in size that its tough to compare raw profit dollars and get any insight

    2. ?If there had been a capitalist down there, the guy would have shot down Wilbur,? Buffett said. ?One small step for mankind, and one huge step for capitalism.?

  4. With the clear understanding that I could be dead wrong, I think Eagle will stay on as part of the new American Airlines, at least for the foreseeable future. It’s also quite possible that the airline will acquire Mesa in a couple of years and fold it into either PSA or Eagle. But to the broader issue, I think the regional space is ripe for the same kind of consolidation that’s occurred among the major carriers, if for no other reason than to protect their pricing power.

  5. The point here is that AE can only be spun off if there is a willingness from someone to invest in it, meaning, that there has to be the potential to make some money at some point. I think AE would have already been spunoff if that was possible.
    I think the new AA will be forced, whether they want to or not to keep AE for a period of time and hope that they can make the business attractive to someone (whether it be another regional or new shareholders).

  6. Like everything about this merger it gives AA/US a chance to be ‘reborn’. If costs are high at Eagle they can shut it down and start another partner carrier, so sell it off and then hire them to be their express carrier.

    If AA hubs stay as they are, an Eagle type service is still needed, but it could be in a different format then now. Who knows the combined company could even mix thinigs up and put Eagle in US-land and US can put some of its express carriers in AA-land if such a switch could be better in the long run.

    1. Don’t forget, Eagle is also in Chapter 11. Its costs are being addressed, too. It wouldn’t surprise me that American’s large E-jet order doesn’t have buy back / trade in provisions for the older ERJs.

      1. But the large E-jets were ordered by Republic. 50-seat flying will still be handled by Eagle. I’m really excited about prospects for the Dash-8’s, which are currently giving US the upper hand in many regional northeast and Carolina markets. These Dash-8’s will also fly as Eagle.

        Maybe once US stops flying PHL-LGA 20 times daily they’ll have Dash-8’s free to do routes out of DFW or ORD.

        1. Sanjeev M, Technically, you’re correct. That’s how Republic works. But the flying will be done for American. My broader point is that there is probably some form of trade in provision (by the way, Republic owns the ERJs it flies as AmericanConnection) in the E-jet order. Of course, I could be wrong.

  7. Another customer experience difference. You might think that small RJs are small RJs, but the Eagle ERJs are, in my opinion, superior to the CRJs operated by the wholly-owned US regionals. Eagle planes have been, in my experience, clean and functional, with seats that are in good condition. On Piedmont, etc., I (frequently) encounter worn cloth seats, broken reading lights, etc.

    Let’s hope that the combined carrier also finds a way to address the absolutely horrible situation at DCA gate 35A–aka, regional jet hell. US has (to its credit) made some *small* improvements, like actually having all of the flights operating out of that gate on one screen, but the experience (standing in a crowded gate with no seats left, announcements every few seconds, going down an escalator to stand in line, getting on a bus and waiting, taking the bus to the plane and waiting some more, and repeating it all when you get home) is still awful…one of the very worst at any US (in this case, I mean United States) airport.

  8. Every posting here applauds the merger based upon the combined airline’s bottom line. Nobody mentions that we, the traveling public, will pay dearly for the imagined benefits of this ill-conceived new “biggest airline.” Doug Parker is hostile to frequent fliers; he ruined a fabulous America West and created a mediocre US Air. Why should we expect anything different from this consolidation? Does anybody else who pays for his/her own tickets think otherwise?

    1. “he ruined a fabulous America West”

      He was one of the key factors to their survival after four years under bankruptcy protection.

      I’m not sure how long the fabulous America West would have survived without the changes to fleet, route structure, cost structure, and overly generous FF programs.

      1. Doug Parker will take what was something special in the air and make it something frequent flyers will want to avoid… you can expect rank and file employees without union contracts to share their unhappiness with passengers…much like we see now with the UA CO merger. I recall UA’s complaints being so numerous they had to abandon their Fly the Friendly Skies slogan… lets hope Parker does not make that happen at AA…

  9. I wonder if this gives the parent company enough heft to spin the regionals out into their own publicly traded company?

    Although the other hedge that the regionals give the majors is a steady supply of new pilots.

  10. Look at Delta, they got rid of their owned regionals and very quickly and now they our buying pinnacle. The USair rep says it best their are benefits two both, I think eagle will be around for a while

  11. piedmont will dissapear…as the DHC-200/300 does not fit in their cost structure. as well as air wisconsin which only has old CRJ-200’s. psa with only 14 big crj’s will also be dismantled.that leaves mesa with 38 CRJ-900’s…and skywest/republic, these last 2 already signed deals with american. AA will continue to own american eagle, just like DL owns Pinnacle, and AK owns horizon. in a few years we will only have 6 or 7 regional airlines

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