Over the last couple weeks, there has been a lot of talk about how the American-US Airways merger is a bad idea. Much of this is just political posturing as the feds review the case, but some in the media are putting out their negative feelings by using strange assumptions and twisting data. I had ignored a lot of this until now, but seeing Chris Elliott’s terrible piece in USA Today flipped a switch in me. I read that and immediately started writing my response.
Why don’t we just go through it bit by bit, shall we? Here’s the general premise of the article:
Or in his terms…
Passengers will probably pay more and get less. Cities are likely to lose airline service. Many airline employees might end up with pink slips.
I’ve taken the following quotes out of order to match the original order of the assertions above. I don’t believe it changes the context, but you can always read the article yourself to judge.
Passengers will probably pay more and get less.
A merger “would substantially eliminate competition on important routes, creating a dominant firm that — acting unilaterally post-merger — could raise fares, degrade service and eliminate consumer choice,” the [American Antitrust Institute’s] Diana Moss recently said in a congressional hearing.
Let’s start with the “pay more” piece and then get to “get less” shortly. This particular statement by the AAI, used to support Elliott’s point actually refers to the handful of hub-to-hub routes and not to the merger in general, but of course, Elliott fails to note that. I also don’t know much about this group except that they partnered with the Business Travel Coalition (BTC) to do the study. The BTC is generally anti-airline, and is funded by groups that drive that agenda. That doesn’t say anything about this specific report, but it does raise a red flag.
Does that mean fares won’t go up at all? I wouldn’t say that. On average, it wouldn’t surprise me if fares went up somewhat depending on a variety of factors including demand, capacity, competition, etc. But that could happen even without this merger. It’s very hard to isolate fare changes and then say they are specifically due to the merger and not any external factors. But there is a big “check” in place here anyway. If the airlines let fares go up too much, then competitors will come in and thrive. That’s how it always works in this industry.
Better service? According to several customer service benchmarks, it doesn’t get much worse than this. The 2013 authoritative American Customer Service Index (ACSI) slapped American Airlines and US Airways with scores of 65 and 64 out of 100, respectively. Last year, US Airways was the second most complained-about airline, and American was number three, according to the Transportation Department.
On the “better service” side, the assumption here is that mergers automatically make things worse. That’s just a bad premise to start with. Look at the Delta/Northwest merger. So far in 2013, ACSI gives Delta a 68. The last time Northwest achieved that on its own was in 1995. So it has almost never been better than it is now. Delta last got a 68 or higher in 1999. That means two airlines came together and got better. Go figure.
United may be a different story right now in its merger, and scores will always take a dip during the process. But you can’t just flat out say that mergers make things worse in the end. In this case, you have a lot of angry employees at American who, under proper leadership, might start delivering a better experience. And as for US Airways, the scores it gets are actually the highest its seen since the late 1990s. Trends are more important than absolute numbers. With US Airways management taking over, I would be more hopeful about improvement than I would if the airlines stood alone.
The same goes for DOT numbers. The trends at American for complaints do not look good but the opposite is true for US Airways. With the US Airways team taking over, you would imagine that things would improve across the board, once the merger kinks are worked out. That should be a good thing.
Cities are likely to lose airline service
More service? A U.S. Government Accountability Office report warns that 1,665 airport-pair markets will lose one effective competitor in a merger, affecting more than 53 million passengers.
It’s time for fun with numbers! This is actually the piece that really got me going. I’ve already been digging into the GAO report, but I don’t quite have everything I need yet. But the above statement is using facts to make a point that isn’t valid.
The GAO defines an “effective competitor” as one having more than 5% of the market. When you merge big airlines, of course you lose an effective competitor in many markets. That’s how mergers work. But guess what? Of those 1,665 markets, more than 70 percent still have 3 competitive airlines in the market after the merger. Oh, and Elliott fails to mention that 210 markets actually see an increase of an effective competitor. (I assume those are things like Burbank to Corpus Christi which neither American nor US Airways can connect today.)
Are there some markets that will see real impacts? Yes, according to the study, 24 markets will go from 2 to 1 airline, but even that’s misleading. The GAO report specifically excludes nearby airports even though that’s usually included in analyses. So that service from DFW to Mesa on Spirit doesn’t count, apparently. Oh, and let’s not forget that Southwest gets the right to fly anywhere in the US from Love Field next year. There will be more competition when that opens up.
I could go on and on about the GAO report, but I’ll save that until I have more info. In short, it’s not proving what some people seem to think it’s proving.
Also, I wonder if Parker has been to the St. Louis airport recently, which lost almost half its passenger traffic after American acquired TWA in 2002, or to Cincinnati, where air traffic plunged after the Delta-Northwest merger? These former hubs are now ghost towns, despite promises made in a prenuptial delirium.
This is a poor comparison that shows Elliott’s lack of understanding about how airlines choose hubs. Some of the problem lies with the airlines themselves – they like to claim that they will keep all hubs when in reality that may not be the case. With American, I think the airline actually believed it would keep TWA’s St Louis hub even though it was a bad idea from the start. There just wasn’t enough local demand and St Louis didn’t provide any real additional connectivity that wasn’t already provided by Chicago and Dallas. It was doomed.
You don’t have that situation in the American/US Airways merger. Are Philly and New York close? Yes, but New York can never be a hub for American because it doesn’t have enough slots (and it has a ton of competition). Philly is a big market that works as a hub. If anything loses service, it’s likely to be New York which won’t miss it. Same goes for LA and Phoenix with LA playing the part of New York. And Miami is a terrible option for a domestic hub while Charlotte is a great one. I don’t see any hub in a situation like that of St Louis (or Memphis, or Cincinnati, or Pittsburgh….)
Which cities are going to lose service? If any, it should be the ones that already have a ton of it anyway like New York and LA. That shouldn’t be much of a concern to antitrust authorities.
Many airline employees might end up with pink slips.
Elliott didn’t bring this up again in the entire article, so apparently he just thought it would be a fun little dig to add at the beginning. Were these two overly-bloated airlines coming together, then yes, pink slips might be around. But US Airways is already pretty lean, and American was slashed during bankruptcy. There will be some overlap, especially in management functions, but chances are that you can get most people to quit by offering buy-outs. I wouldn’t expect any mass layoffs directly because of the merger, especially not on the front line.
In general, it seems like pundits are trotting out the usual, tired arguments about why mergers are terrible. Most of the arguments simply don’t hold water.
[Original naked protestor image via Shutterstock]
106 comments on “American/US Airways Merger-Bashing Relies on Inaccurate Assumptions and Bad Information”
I heart you Brett … Chris Elliott is really starting to piss me off lately, it seems he only writes recently for pageviews and clicks, not facts, then gets pissy when you question him. You on the other hand report facts and are a reason why this site is one of the first I go to when I wake up.
I very much agree with you here, except on the “lately” part. I have always found Chris Elliott to be very nitpicky and off-base. I appreciate the goals of what he does but I think that his methods are often suspect and his results are often due to his position, not because he is right. I stopped reading pretty much anything from him years ago.
Apparently Chris Elliott has now been signed up to do a weekly column for USA Today. So, um, get ready for a lot more of this stuff.
Thanks Cranky, I’ll be looking forward to seeing them.
BMK is right on, CE just writes for clicks in between his sponsored trips.
And you do a great job Brett of tearing up his whiny arguments.
However what is not answered by CE in particular and even here is who should pay for keeping the airlines separate? Does CE think this is something maybe the government should subsidize? Because the market has proven that it simply cannot support the number of carriers that were in existence historically. The airline industry hit a downturn and the number of airlines in existence got culled. That is how it works in any industry. In the glory days the market becomes saturated, when things go downhill the market naturally corrects itself back to the “right” size (unless it’s banking in which case the governments did intervene to prop up institutions that should have gone bankrupt, but that’s another story). At it’s heart CE is saying that the country needs two unprofitable airlines to offer products below their actual cost in markets where there simply isn’t enough demand, and completely fails to address who should then pay for that shortfall. So who should it be CE?
CF – I think you’re taking a slightly unfair line on this. Yes, consolidation needed to happen – 10 years ago the US had too many major airlines with labour and consumers having to much power while shareholders were being screwed.
However, the reason for consolidation is typically that consumers are purchasing the product at below the cost of production leading to companies losing money, and the major players need to 1) reduce their unit costs and 2) gain more market power.
A US based airline may have the legal right to jump into new domestic markets whenever they like, but it doesn’t always happen for various reasons. There’s only so much that Spirit or Virgin America can achieve.
Yes, consolidation will help airlines reduce their unit costs, but fares will also go up. It may be difficult to point to clear instances where fares have gone up *solely* because of consolidation (easy to blame things on the price of oil), but fares will go up.
David – Absolutely. And that’s why I say it wouldn’t surprise me if fares do go up. But if they go up too much, they create an umbrella for competition. Sure, that is nearly impossible in New York and at National because of slot constraints, but it isn’t an issue elsewhere.
There’s no question that it’s hard for competition to gain a foothold, but it has worked many times in the past. The problem today is that legacy costs have come down and fuel costs have risen. (Fuel costs impact legacy and new entrants the same, so it’s harder to get a cost advantage today.) Legacy airlines are making fair profits (well, not American yet), but if they start getting greedy, someone will come in and challenge them.
I’m surprised nobody is analyzing this from a Global Alliance perspective. We currently have 3 GAs: Star: UA/US – oneworld: AA and SkyTeam: DL. Although UA/US currently codeshare, they do not have a domestic Joint Venture. A combined AA/US would bring a market share balance to the GA’s in the U.S.
Much of the debate is also centered on DCA slots, but with US currently in Star, the greater Washington/Baltimore area is under the thumb of that alliance. Southwest dominating BWI does not offer that airport an alliance option but an AA/US combo effectively breaks the Star hammerlock in the DC area. So even though AA/US will be approaching a 70% slot share at DCA, the new paradigm would offer another major choice for DC area pax in terms of GA options.
I feel the current objections are much ado about nothing, and if AA/US works out a deal with Southwest or jetBlue for some DCA slots a la UA/CO/WN at EWR, the “problem” will be solved.
The new American will still be the dominant carrier at DCA, but I highly doubt the feds will let AA/US walk away with 70% market share. Yes, there are other airport options in the DC area, but as I mentioned in previous posts, DCA is the centralized airport for the region. With traffic around DC being some of the worst in the nation, BWI is a huge hassle for people living in Northern Virginia and people in the Maryland suburbs generally avoid Dulles. DCA is also the only slot restricted airport among the 3. Whether it is right or wrong, I fully expect the Justice Department to force AA/US to give up some of American’s old slots to low cost carriers
I agree with Ben that the combined airline will have to give up some slots, but I doubt it will be a ton. All this talk about AA/US pulling out of smaller markets from DC will come to pass if huge numbers of slots are taken away, but if it’s only a handful, then I would bet most would be safe. But they might as well call for doom and gloom as part of the negotiation.
I think that if any slots in DC open up it may be a chance for new competition to either pick up lost service to cities and perhaps open up new service points. I think there may be a bright side to this story. More competition is ALWAYS good for consumers. It helps keep the big boys honest or at least on their toes!
One of the more blatant lies in the USAT piece is “…St. Louis airport recently, which lost almost half its passenger traffic after American acquired TWA in 2002.” St. Louis may have lost its flow traffic, but its originating passenger traffic is higher today than in the referenced year 2002 (when most passenger declines were due to 911).
As a resident of STL for 30 years I’ve seen the highs and lows. While losing the TW/AA hub was a blow to local pride, in real terms airfares have gotten better. Anyone who lives in a hub city knows airfares can be ridiculously high in some markets…with a more even market share balance the fares are much more reasonable. Having WN as your largest carrier doesn’t hurt the equation of course, but they’ve been in the STL market for nearly 30 years and I’ve seen the difference the loss of hub status has on the leveling of fares. Sure, I have to connect more often, but as an AvGeek that doesn’t bother me at all.
Further to the STL discussion: It may have gone unnoticed by many (but not by me) that Delta has slowly been filling the gap at STL for a couple of years. Yes, I still have to connect to get to most places, but they generally are civilized connections, and STL will not likely see nonstops to Paris by anyone again in my lifetime. We have DL nonstops to JFK (and LGA) and loads of connections through ATL and MSP, a few more through SLC and DTW. I can tell you that the A Concourse is not a ghost town. I have no idea how Elliot got that notion.
It was inevitable that we would consolidate down to a “big 3” oligopoly in the legacy airlines. Just feels like the writing has been on the wall ever since Delta/NW started the latest rounds of mergers. Still people are going to be nostalgic. My father always talks about how “great” it was to fly Braniff or Western, etc. I remember flying TWA and Eastern as a kid and it was nice as the planes were never full and we got fed a meal (that everyone complained about at the time). I think some sense of nostalgia drives reporting like this. People generally don’t like change but it remains part of life.
Nostalgic feelings also gloss over the negatives of flying “back then” The frequent mechanical problems, the puddle-jumping across the country, the sky-high prices, the tiny airplanes to small towns (remember the Metroliners and Bandeirantes?) and worse the crashes and hijackings that happened much more frequently.
There will always be people who fuel the fire for no other reason then to keep themselves in the news. This way other people quote them, interview them, etc. What they say, is to only benefit them and nothing/no one else.
As people get older they will always look back and say how things were nicer or better in the past using ‘nostalgia’ as -A- above said to guide their thoughts, and in some cases because it was better in the past.
It is interesting how some people will put out data about this merger, but it’s not like it’s the first time two airlines have merged. So where is their data how horrible thinigs have been over the last 20-30 years worth of mergers. If things have been really horrible all these years, the feds would have stopped permitting mergers a long time ago.
Cranky, perhaps the hub-to-hub routes are just a handful, but they’re important and they could suffer a lot. Shortly after the United–Continental merger I was helping a relative get from New Jersey to L.A., and Newark–LAX fares were at around $600 one-way consistently, compared to under $300 before the merger (now, with American and Virgin also serving the route, prices are back below $300). Competition at alternative airports across the Hudson did nothing to mitigate the fares — United saw an opportunity to gouge customers who needed to fly EWR–LAX non-stop, so they did. Competition did come in eventually, but Newark is not an easy place to add service.
So expect US/AA to take advantage wherever they become a monopoly. And it is the regulator’s duty to minimize the number of routes where this happens, and to take steps that help the competition step in when possible.
Ron, non-stop flights are the one spot where an airline has pricing power – since they’re offering a product no one else offers, they can (and do!) charge more.
Precisely. Which is why reducing competition on such routes should not be taken lightly. Airlines should make a profit, but there should be checks on the profits they make where an airline is an effective monopoly (just like any other monopoly). And one of the best checks is preventing a monopoly from forming in the first place.
Competition is the best check in preventing a formation of a monopoly. In your own example, UA as charging (and more importantly, getting) a large fare for the route. VX saw opportunity, stepped in and fares lowered.
Ron – But you’ve just shown my point. If United thought it could extract a pound of flesh, then someone else was there to step in an take advantage. Now of course, Virgin America is hardly succeeding, but they’re in the market because there could be opportunity. And for those who are truly price sensitive anyway, there are always alternate airports in that area with lower fares. The same thing will happen in American/US Airways hubs if the opportunity is there. And sure, it wouldn’t surprise me if they took a few slots at National to hand out to others.
Well, LAX is special because even though it’s nobody’s hub, many airlines consider it important to have a strong presence there. That’s why United flew to EWR pre-merger, and why American maintains a single daily flight (actually scratch that; I can’t figure out why American maintains a single daily flight). For Virgin to come in was just a matter of getting the slots (and maybe the aircraft). But who’s going to jump into Dallas–Philly? LUV? Spirit’s single daily does not seem to put a dent in the market. Any takers for Charlotte–Miami? It’s a handful of markets, but they’ll suffer.
Dallas – PHL could easily come from WN, especially after restrictions are lifted. CLT-MIA will be challenged by CLT-FLL on B6 or WN or possibly NK.
The market responds. Competition responds. It may take a quarter or two before schedules can be adjusted, but it happens.
@Ron-if regulators are to make sure profitable routes aren’t too profitable, are they supposed to make unprofitable routes profitable too? Consumers benefit when airlines are profitable, and no one honestly thinks they are rolling in profit. Just because your fares are high, does not mean the airline is profitable!
You have to remember, a prominent goal of Chris Elliott (and his friend Charlie Leocha) is the re-regulation of airlines, whether or not he has the guts to admit it. He wants Economy Plus seating, one checked bag, hot meals, and seat assignments together for his family at the front of the plane for “free”, i.e. the rich man behind the tree has a moral obligation to subsidize his travel. I guarantee he’ll be at the front of the line decrying the “windfall profits” of the airlines when the government orders these things, and coach airfares go up $80 each way as a result. He has an agenda, and therefore you aren’t going to find an objective report from him on this topic.
Now, I do think some of the scaremongering your see probably is a result of US Airways’ less-than-stellar reputation of the past. It may be a different airline today, but there are still many folks who associate US with the old “US Air” and its problems of 5/10/15 years ago, and not the new “US Airways” (remember that there are still people who refuse to buy GM cars due to their quality problems in the 80s, so a bad reputation, once earned, follows you around for a long, long time). Not to mention, the painful US/HP integration is still fresh on a lot of peoples’ minds. Whether it’s rational or not, psychology is a powerful factor, and to be blunt, there are a fair number of AA partisans who fear that their airline is going to become the bad, old US Air, and that the systems integration will be bungled, leaving the airline practically unusable for a period of time. I’ll confess to harboring some of those admittedly irrational fears myself, though a couple of decent, recent experiences on US is slowly helping me change my mind. The recycled arguments you see – service cuts, fare increases, etc. – are really just a way of rationalizing that fear, IMHO.
$80? Ticket prices would probably double if there was reregulation..
Well, $80 would be about double the one way fare on that DFW-IAH short hop :)
But that proves the point I was trying to make. These guys will squeal if fares rise $80. Heck, they’ll demand Congressional action if they go up $50.
I was commuting weekly from San Diego to the midwest when American took over TWA. I know what I saw: 1) significantly reduced choices in every market where the two overlapped; 2) significantly increased fares after routes were eliminated; 3) layoffs of personnel. I saw the same thing when Southwest took over Morris Air. And again (in a huge way) when American took over Reno Air. As someone whose entire family lives in Tempe (home of US Air) I know much about the issues that STILL exist between the merger of America West and US Air, and how that has negatively affected employee morale. Anyone who thinks that choice won’t decrease, prices won’t increase, and layoffs won’t occur has their head in the sand. The USA Today piece is spot on.
David, I observed much of what you did and fully agree with you. I also agree with you that the USA TODAY article is a realistic observation and fair prediction of what will happen [again] when this projected mega airline is created. Very challenging times, indeed, for the flying public. God help us!
Great article!
If you look at the complaints on each AA and USAir’s facebook page, I would have to say AA is doing a much better job with customer service. Just saying….
Why are you so pro-the USAir and AA merger, Brett? The majority of the public doesn’t want it; I certainly don’t want it. I understand you were an airline employee or perhaps a lobbyist for US Air (that’s what it feels like). For us travelers, the merger is a horrible idea for so many reasons, not the least of which Doug Parker is predatory and has shown little concern for the people he transports which greatly frightens us all.
What are the many reasons that the merger is a horrible idea?
And where do you get your numbers that the majority of the public doesn’t want it?
This 250,000 mile per year business traveler wants the merger. Right now, there are only two US airlines that can really get you everywhere you want to go while having mileage programs you can use internationally. With an AA/US merger, there will be three such airlines. US is strong up and down the east coast, but somewhat weak for transcon and the Midwest. AA is strong transcon and in the Midwest, but weak on the east coast.
Even if your totally unsubstantiated claim that most Americans don’t want this merger, those folks don’t really fly all that much in the grand scheme of things and aren’t really well informed.
Those of us that have to travel for a living want maximum flexibility. Having three strong US airlines, each with comprehensive networks and each aligned with a different international alliance is *good* for consumers – 3 strong competitors are better than a duopoly and two weak sisters that can’t compete.
There will always be cheap-fare competition for the leisure markets the general public cares about, and Southwest for those who never leave North America and who never need to fly into a market too small to support a 737.
Baron – If I’m a lobbyist for US Airways, then I’m doing a terrible job of it since they don’t actually pay me anything. I just call it like I see it.
You’ve thrown around a lot of accusations in your comment, so I’d love to see them backed up.
*Where is the study showing that the majority of the public doesn’t want the merger?
*Please explain how Doug Parker is predatory. That’s a strong word, and I don’t remember seeing him interviewed by Chris Hansen…
*How does Doug Parker show little concern for the people he transports and frightens them?
Without any sort of backup, this comment isn’t really helping the discussion.
The GAO report isn’t too different from Chris Elliott’s piece. Both are filled with conclusions which have little basis in fact. Both regurgitate “history” and make the assumption that the U.S. airline industry is the same now as it was ten years ago.
Things are different. The entire U.S. legacy airline industry (including Southwest) is now focused on profitability and providing a real return to investors. The US Airways / America West merger was the beginning of this sea change. That merger began the process of capacity discipline.
One difference with this merger is that both US Airways and American have shrunk – a lot. US shrunk during its last Chapter 11 reorganization and has shrunk further. America West shrunk, too. It’s Pittsburgh and Las Vegas hubs was dismantled. What worked in the ’90s when fuel prices were low didn’t work so well when higher fuel prices became the norm. American has dismantled much of its Boston and San Juan operations to focus on its “Cornerstone Strategy.” As I see it, there’s not a whole lot left to shrink. There may be some shifts here and there, but not a lot.
I think (and it’s only a guess) that the new American will use Philadelphia, Charlotte, Dallas/Fort Worth, Chicago O’Hare, Phoenix and Reagan National as primarily domestic hubs. Obviously, there will be some international service from those points as well. JFK, Los Angeles, and Miami will be (and are) used primarily as international gateways. Philadelphia and Newark are the only airports in the New York / Philadelphia region that have the capability to be full service hubs. Look at the situation with Delta. It has to have a split hub in New York.
I can actually see Phoenix growing. As I’ve pointed out before, the Phoenix metro area has around the same number of people as North Dakota, South Dakota, Wyoming, Montana and Idaho combined. The Southwest is far more populated than the Northwest. Both Boise and Spokane (the largest cities in the Northwest, outside of Seattle and Portland) are less than half the size of Mesa, Arizona. People travel and ship things, not empty land.
At the beginning of airline deregulation, William Seidman predicted that the industry would ultimately consolidate into three large carriers. While he didn’t foresee the emergence of Southwest, he was, on the whole correct. As I also state over and over, the parallels to the freight railroad industry are hard to ignore. With four large, consistently profitable carriers, it will be easier for companies to invest in their products and services instead of working hard to merely survive. I would rather have airline profits than the constant string of bankruptcies which have been the hallmark of the airlines since the time of the Wright brothers.
DesertGhost – Excellent. AW also failed at hubbing Columbus.
(For some reason I initially read PIT as PHL and thought you mistyped..)
Nick Barnard – Mistyping is a disease I often have.
To those who worry about less competition, I feel there’s more than one way to approach the question. To illustrate my point, let me state my premise as a question: Which is better, a large number of weak competitors, or fewer, stronger ones?
Each of us has a simple remedy for what we perceive as high air fares. Don’t fly. That’s the hammer each of us wields.
There’s a school of thought that says too much competition destroys all competition. All of the airline bankruptcies throughout history, whether the industry was regulated or not, are a simple testament to the validity of this observation. The aviation industry hasn’t made a decent return on investment in its entire history. I would prefer a few, strong and profitable competitors to the plethora of bankruptcies of the past.
One of the best explanations on how this merger will be better for competition was Cranky’s “best slide ever” which showed all the new city combinations by integrating US’s east coast with AA’s midwest. new options/opportunities.
Re STL: AA loved the TW hub. It ran like a top. Unfortunately, it didn’t make money because the market was the inverse of what a successful hub needs: majority $$-making O/D, supplemented by logical lower priced connections. TW STL had the added factor of WN’s competition which kept even the O/D fares down. When 9/11 happened, whatever hope STL had of remaining a hub was toast. Eventually, the market sorted it all out and while not pleasant for STL at the time, they do have service commensurate with the demand…. and a variety of carriers still ping the market to fill niches that fit their structure.
For those who want to see the slide Gary is talking about, it’s in this post:
http://crankyflier.com/2013/05/06/the-best-slide-ive-seen-showing-americanus-airways-merger-benefits-to-mid-size-cities/
Re: DCA – I could see AA/US divesting around 15 slots with reductions coming from duplicate routes (ie Raleigh and Nashville) and consolidating high-frequency RJ routes into fewer flights on larger aircraft.
Re: hubs – I think DFW, ORD, PHX, CLT, and DCA will be mostly domestic hubs with a few international routes. MIA and PHL will be international gateways with MIA serving Caribbean and Central/South America and PHL serving Europe and Middle East. The airline will likely remain a niche player in Asia as they don’t have a suitable hub for Asia flights, though PHX could become one if Parker wants to. I agree that any flight cuts would likely come in LAX (in favor of PHX), JFK (in favor of PHL), and possibly LGA (also in favor of PHL) all of which see plenty of service on other airlines. Other airlines could also fill in the gaps left behind by any AA/US cuts.
I really did not want to spend anymore of my time on what I believe to be the inevitable combining of US AIR and AMERICAN. However, the blog that Cranky has just unleashed forces me to add my opinion on an issue that is AND WILL NOT BE a good thing for consumers.
It appears to me that Cranky is in self-denial on the effects and reprocussions of the proposed union of the two airlines. I, personally, believe that his opinions on the future of a potential mega airline are misleading and overly optimistic.
The flying public has nothing to thank Doug Parker and his business decisions in running US AIR. He already has a record of cutiing service to cities, cutting jobs and looking dismal in DOT scoring and for Brett to say that the current ACSI score for US AIR is now higher than 1990 isn’t saying much, is it? In fact it should be viewed as an embarassment.
Regarding his comment that a “merger” won’t make things automatically worse, that may be true. However, it would make it much easier to make things worse.
It is definitely wishful thinking on Crankys part to say that things will improve with a “merger”. For who? The history of airline mergers demonstrate that the public suffers by service cuts to cities, fare hikes (less competition means less reason for price roll backs), and lets not forget the continuing loss of passenger comfort and the growing list of those “FEES”. The list of negatives can go on.
Although I respect Crankys point of view and his opinion, I am not alone in believing that the completion of the combining of these two airlines is definitely going to be a bad thing for consumers. Would you believe the banks telling you they know what is good for you? Or Wall Street? How about the oil industry? My point is, as a consumer, take a step back and think about the consequences of the creation of a mega airline that will have more power over the future of Americas flying needs or availability or pricing influence. At a minimum, it should be a major concern for the DOT, Congress AND the average flying customer.
My personal opinion.
Mike, you presume that Parker’s team will do to a US/AA what his team did to AW and AW/US. He’d be stupid to do so.
If you accept that the DL merger was good for consumers (better product, more connections, larger airplanes (thats not here yet, but on the way.)) the US/AA merger should be as well. Parker’s team has been managing the airline they have, not the airline they wish they had. US/AA will give them an airline much closer to DL, and they know it needs to be managed in a different way. What is the investment saying: past performance isn’t indicative of future returns? Yeah, theres a risk here, but the strategy that worked for US/AW won’t work for US/AA, and the team knows it.
Everything I’ve seen from Parker shows me he’s improved US Airways (along with a lot of committed people). I don’t know what DOT statistics you’ve read, but in the objective measures like on-time performance, baggage handling, etc. US has improved. Complaints are subjective and can be about a wide range of issues, many of which are trivial at best. I discount them as a measure of performance. Interestingly, many of the complaints I’ve read center around the discontinuation of in-flight entertainment, baggage fees, etc. I doubt those who survived the San Francisco crash are worried about the in-flight entertainment they used, the food they were served or the baggage fees they paid. There are more important things about running an airline than in flight entertainment – little details like safety among them.
D. Ghost, I belive and agree Parker may have improved US AIR to some extent, it could only go up from years past. The statistics I was referencing are on Crankys Blog. However, you splitting hairs on the contents of these reports in order for you to change the meaning is unfair to readers and misleading. It is your previlage to discount or interpret the reports any way you prefer, but unfair to change the content of this discussion by insinuation a trade off of safety for in flight entertainment (where did thjat come from?), fees or adequate competition.
Competition has created and ended many airlines over almost 100 years of fly the public. Limiting competition may make it unaffordable for many consumers in the future.
I do agree with you on one matter, people should start to explore other means of travel – when ever possible and when it makes sense. Consumers should vote with their dollars. Flying today is no longer a pleasure and at times, not as efficient. It can easily be a trial of endurance and patience.
Consumer Mike – There’s nothing unfair about my comments. What does fairness have to do with this? I was very up front about the fact that I discount complaints and mentioned why I do so. It’s simply my opinion. You’re free to disagree.
What Parker’s team did with AW and AW/US has lead to profits, which an airline needs to stay in business. Why would Parker’s team deviate from a strategy that has proven to be profitable?
Furthermore, in airline mergers the CEO’s team ran the combined airline more or less the same way they ran the CEO’s premerger airline. I see AA/US following that trend.
Well Parker managed the airline they had, which had limited ability to generate revenue (given the network it had) and managed it as such to be profitable at a lower revenue. So all of those fancy things like great seats and IFE went.
US/AA has much more ability to generate revenue, but it’ll have to invest more to get that revenue.
Consumer Mike – As in most cases, we’ll never see eye to eye here, but I always appreciate you chiming in. Just a couple thoughts.
Without Doug Parker and team, US Airways does not exist. Period. That airline was days away from liquidating when America West scooped it up. So many jobs were saved and service to many cities was retained because of that. Suggesting that cities lost service because of the takeover is pretty silly. They all would have lost US Airways service without it.
Regarding the DOT numbers, why would you be embarrassed to have the highest ratings US Airways has had since the 1990s? That’s an achievement.
I think you’re attributing way too much “bad” to mergers here. You know which legacy airline was the first to charge a first bag fee? American. There was no merger in sight. Just a desperate rush to find cash to stave off the insane cost jump thanks to fuel prices.
completely agree!
Parker gets a bad rap for sacrificing a few to save thousands more. As for the low service provided by US, consumers repeatedly say that it is what they want when they choose US over B6 for a $5 airfare savings. If the flying public doesnt want AA’s “audacious” additions of seats, or US’s removal of IFE, then pay for a ticket which includes it! But you can’t have it both ways. High fares are not the same as high profit. The industry’s costs have risen >50% in the past 10 years and fares have remained somewhat steady, it’s a testament to the airlines.
Although there are many well thought-out comments on this site, Noah Kimmel’s is one of the best, most direct comments I’ve seen in a long time So many forget these points he makes.
Cranky,
You are just a shrill for this merger. It is not needed each airline can survive on their own and fares will go up and service will go down.
PHD Transport Economics
“…each airline can survive on their own and fares will go up and service will go down.”
If you are talking about free market economics, then airlines should be free to merge as dictated by the market conditions. Strictly speaking, of course it isn’t NEEDED, but if both airlines want to, then why shouldn’t they merge from an economic standpoint?
“Can survive” is a relative term. I am a NY based weekly business flier. Many of my peers have chosen to leave AA and US for UA and DL because of the larger networks and greater frequency offered. When US or AA reaches the tipping point of losing too much corporate travel, they will go into BK and have worse consequences for owners, employees, and consumers. They are not a low-cost airline with a low-cost network and cannot compete without the business community.
For those who do not know, Cranky worked for America West, who wound up merging with and basically taking over US Air. He has a personal bias toward them, and that is somewhat natural.
The idea that this merger is good is silly. It’s more consolidation, more pricing control by the four big airlines (that includes Southwest now). It’s already really expensive to fly on WN without a 2-week advance fare, and it’s getting worse.
These airlines will continue to reduce competition and increase fares, and again they will play games with Saturday night stays and 3-week advance fares to gouge business travelers. The 250,000 a year business traveler doesn’t like this much, because it will force more weekend travel, and it will also reduce the quality of service. I’ve traveled extensively on both airlines as a high end frequent flier, and there is a big dropoff in the level of service between AA and US. There just is.
DOT and Congress won’t stop this. But in the future, you can look forward to be crammed into a 30″x17″ slot, pay through the nose for bags and other fees, and pay more for the privilege. Southwest won’t help – they are already squeezing more seats into their planes, and it will just get worse. Spirit and Allegiant work…if you don’t mind sitting in other passengers’ laps and being charged fees just to pay your fees.
And so it will go. I’m buying stock in the new AA. They will print money.
I’m not sure the airline industry will ever print money. . . .
As a newly relocated CLT-hub user I guess I prefer the status quo, but that never got anyone anywhere. I do mostly domestic but did a FRA-CLT run and that was great last month. Something neat about flying into a medium sized ctiy on an international run, and driving home. . .
your price is high, but tell me which airline is making huge profits? Global profit margin is expected to be 3.4% this year. I hardly call this gauging
I like and respect your analysis but I would note with reference to what you call a GAO report. As of this date, there is no GAO report, merely testimony by a representative of GAO to a House subcommitte chairman, ranking member, and subcommittee members.
As you can appreciate, it is difficult for anyone, even what I consider the highly respected, non-parison GAO, to have come up with “The Word” on this matter in such a short time–from Feb. 2013 to June 19, 2013. A GAO report typically shows that it was aired, offered for comment, to all interested parties, not the least of which would be US and AA, and the Airlines for America. Testimonies, don’t include generally “go out” for comment. I would expect a final report, probably one a year from now, would.
Not that GAO needs anyone like me to defend it, or to suggest that your points about it are not well-founded, I merely make note. I have no doubt GAO, even now, welcomes your’s and anyone else’s comments about its testimony.
Regardless, the soon-to-be re-structured airline industry organization will give us all much to talk about for years to come. I only hope you will continue to blog about it and I’m alive to read your work.
JayB- That’s funny. I read the GAO report. I believe I found it on a link from a Fort Worth Star-Telegram story. The report was the written part of the GAO’s testimony.
I don’t wish to overdo this, but I will, anyway. The official site for GAO products–reports, testimonies, etc.–is http://www.GAO.gov., and you can print a copy of any such document from there, no charge. If you don’t want to print, or can’t print a “hard copy’, they will do it for you, but for a charge.
As you noted, newspaper web sites with interest to the subject, will redirect you to the GAO web site and the specific report.
Almost anytime a GAO rep gives testimony to a congressional committee or subcommittee, the rep delivers a printed statement. The statement, or testimony, will be numbered with a “T,” here “GAO-13-403T.” This type of product may be issued at the same time a report (numbered without the “T”) is issued. Testimonies don’t have to go through the same degree of auditing and accounting standards as do reports, so they are often used to get something to the committees more quickly, but the subsequent report, if one is issued, with have comments from interested parties and may be somewhat revised from what is in the testimony.
[Like, more than anyone really cares about, I know, but whatever!]
Thanks for the insight.
JayB – You can call it whatever you want, but the link to the thing is here for those who want to read it:
http://www.gao.gov/products/GAO-13-403T
I called it a report because the link on that page says “view report.” It may very well be a testimony or a study, but, well, I don’t know the nuances of government reporting very well.
Ultimately, I’ve seen a lot of people trying to use the report on the “anti-merger” side to show how horrible it’s going to be. And it’s pretty incomplete at best and wrong at worst, so that’s a dangerous thing.
Regarding the comment about AA’s decision to drop TWA’s STL hub (copy of comments below): I was living in St. Louis at the time, and there was tons of media coverage about it. American’s plans for STL can be found with a Google search. At the time AA was buying TWA (late 2000-early 2001), AA’s Chicago ORD hub suffered from delays due to congestion, and their DFW hub had similar problems to a lesser extent. The plan was to use STL as a reliever connecting hub. Then 9/11 happened just months after they bought TWA, and it took years for air traffic to recover, so suddenly the congestion problems at ORD disappeared, and AA had too much overall capacity. They reduced STL and moved about half the flights from STL (and airplanes) to ORD and DFW, split about equally. It was also a good opportunity for AA to catch up to United at ORD, because United was cutting flights there and AA was #2. I question the validity of the comment that there was not enough local demand at STL to support a hub. The metro area is the 19th largest in the US, with almost 3 million residents, and very good business demand. The STL airport today has no hubs and almost no connecting traffic, the key defining characteristic of a hub which allows it to support more flights beyond what is generated exclusively from local demand, yet the STL airport today supports about 250 daily flights. Copy of the relevant comments above: “With American, I think the airline actually believed it would keep TWA?s St Louis hub even though it was a bad idea from the start. There just wasn?t enough local demand and St Louis didn?t provide any real additional connectivity that wasn?t already provided by Chicago and Dallas. It was doomed.”
Scott, even today I miss the STL hub/connection. It was one of the things I liked most about the TWA/AA experience. Central location for domestic flights. Definitely less congestion than ORD or JFK. Better shops/stores and resturants than Atlanta. I always tried to connect through STL. That hub should NEVER be sold short. To bad it is under utilized in todays air plans.
Elliott omitted Parker’s testimony to Congress that many smaller cities will lose DCA travel if the New American has to give up slots that are now served by US.
Brett,
Why are you surprised…..? There are so very few reporters getting it right when it comes to aviation that this is really no surprise. They repeatedly (or intentionally) forget what they have been told before about the length of time it takes for an investigation to run it’s course, and have no appreciation for what’s involved. Those “details” don’t sell – so why bother include them? They are more interested in “sound bites” from (sadly) affected passengers, who have just one view-point. It is a sad reflection on the state of our media (non-)reporting.
Please!
Pick and parse the USA Today article all you want. But the truth for me, here in Pittsburgh is: there will be changes and they are not likely to benefit the USAirways employees I know. The flight ops center here will most likely be merged into the AA operation at DFW. Will the PIT maintenance base meet a similar fate? Unknown, but I say it’s likely.
USAirways decimated its hub here. Argue all you want about the reasons, but people in places like CVG and MEM will tell you the same thing. Mergers have resulted in less service and higher fares. The OPPOSITE of what de-regulation was supposed to create.
The primary beneficiary of a merger is the surviving airline’s stockholders. Period. End of story. You will never convince me otherwise, your detailed and nuanced debate points to the contrary, with all due respect.
I agree totally Paul. Otherwise, what purpose does the merger serve? Doubling up on facilities?
So without deregulation, when airlines were guarunteed a profit, please explain how a 50+% increase in fuel would result in a <10% increase in fares?
What I find interesting is the number of airlines that went bankrupt or were allowed to merge to avoid bankruptcy when they were “guaranteed” a profit.
“But there is a big ?check? in place here anyway. If the airlines let fares go up too much, then competitors will come in and thrive. That?s how it always works in this industry.”
Hahahaha. I don’t know if you’re being sarcastic here, or if you actually said that with a straight face.
After WN ended service on PIT-PHL, US immediately more than doubled the fares. Where are the competitors who are coming in and thriving?
Heck, when was the last time a major airline other than Southwest invaded a competitor’s turf and brought down airfares?
Spirit? Airtran? Allegiant?
That being said if WN couldn’t make money on PIT-PHL and pulled out, why shouldn’t US raise their fares?
Also, airlines are a for profit business. Not a charity.
Jim – Southwest went into that market and failed. If there was real opportunity to make money at lower fares, then they would have succeeded. But when they walked away, US Airways brought fares back to where they were before when the market worked for them. If someone else can come into a market (as mentioned, it’s been done plenty of times), then they will. The problem is that sometimes airlines think there is opportunity when in fact there is not.
There are plenty of markets where fares are higher than what you would expect based on supply and demand. But airlines (other than Southwest and the LCCs) do not want to enter and start a price war, because they know it’s not in the interest of the industry as a whole. As we all learned in economics class, you need several competitors (maybe around a half dozen) for true competition. Anything less than that and it becomes an oligopoly where each company will carve out its turf and avoid infringing on a competitor’s turf for fear of retaliation.
VX is in EWR and PHL, B6 has stated it would add 100 flights to DCA if it were allowed and has increased its LGA presence, added DFW and took the carribbean from AA. I think you give too little credit to competitors. Change does not happen overnight, and market bearing fares may be high, but that is what it can bear. And if people have a problem, stop flying legacies. When jetblue entered JFK-CLT there was no competition, US now flies it 5x daily to b6’s 2. As long as consumers choose US to save $5, then they shouldn’t complain when they get the US service. Ina 1% profit industry, that $5 makes a big difference
Brett, Elliot is a total waste of publishable space, and it blows the mind that he continues to obtain writing assignments! HOWEVER, even though you are normally very balanced and objective, having read you over the years you are a America West/US Air loyalist and a Parker fan-boy and you rarely if ever criticize them. I am willing to bet that if AA were the airline taking over US, you would be all over this merger criticizing it big time! This merger IS bad for the traveling public as all are. Leaving only 3 major US carriers or 4 with Southwest is bad news for consumers who are left with less choice and will face higher prices and less capacity.
He’s also worked for United. Does that make him biased against United too?
If all the old hubs like MEM, PIT, CVG, and STL were profitable in today’s reality, they’d still be hubs. You think an airline is going to elect to de-hub an airport just to spite you? Please. It’s very simple: routes that make money stay, routes that don’t make money go away (outside of artificial forces like slot controls). Just like airlines that make money stay, and airlines that don’t make money go away.
Then how is Virgin America still here?
Virgin America faces a very uncertain future.
I think Brett would be right to be critical of the merger if it were the current AA management team that will be running the combined airline. This is the team under which American has been getting worse over the past few years. Compare this to the US management team, which has been making US Airways better.
I want to chime in a little bit more about fares increasing here, because I think that is the most interesting question. Will they actually go up because of the merger?
A lot of this may be based on nuance. The average fare in a market doesn’t necessarily mean that the fares themselves have gone up. Every market has a variety of fares filed, some higher and some lower. An increase in average fare could just mean that the airline is selling more seats at high fares as a percent of total seats sold. That doesn’t mean fares have gone up, but it does mean that fewer of the low fare seats are available. I know, some will argue that’s a fare increase while others will say it isn’t.
Regardless, is that what we’ll see happen here? Maybe, but it’s highly dependent upon what happens with demand. Looking at the hub to hub routes, I just don’t see those as being at risk as much as others. I mean, have you looked at a fare to go from Dallas to Charlotte tomorrow? It’s over $700 one way if you go nonstop. Is that really likely to go even higher just because of a merger? I would doubt it – I’d expect capacity to actually increase on this route because of the traffic flowing back and forth. I’m not suggesting fares will go down either, but I don’t know that they can go up much either.
Where I find myself most curious is actually in connecting markets. In general, I have this perception of US Airways offering lower walk-up fares in connecting markets, but then I look at average fare data and it says otherwise.
Tomorrow, I can buy a ticket from Boston to Raleigh on US Airways for $155 while every other legacy is more than double. So you would think that in a merger, the low US Airways fare would go away right? But look at the average fare data from 4Q2012 and you’ll be surprised. US Airways has a higher average fare than any of the other legacy carriers.
This is a small snapshot and I’d love to do a full analysis, if I can find the time. But there is a lot of conflicting information and it’s hard to really grasp what will happen. There is, however, still enough competition in the vast majority of markets to mean that even if fares do increase, it shouldn’t be an anti-trust situation except maybe at Washington/National where I wouldn’t be surprised if a handful of slots have to be divested to compensate.
I would also pose the add on question –if US/AA merge, will they get more corporate traffic which pays the higher fares? This does not necessarily hurt consumers as it may make room for more junk fares for leisure travel times, while peak times may get more expensive.
Noah – That’s true as well. Or it could mean that other airlines will have more seats available at lower fares because the higher fare traffic has shifted to the new airline. But it all depends on how capacity responds.
Cranky, you mention RDU-BOS? Interesting. The reason fares are low on that route is NOT US Airways, it’s Jetblue, which also serves the route nonstop. It has nothing to do with US Airways keeping fares low.
Check out where US does NOT compete with an LCC. RDU – PHL for example. Nonstop on that route on July 16 is $385.
US Airways prices low to match competition, period. Where they do not compete with Jetblue, Southwest/Airtran, or Virgin, they often price tickets to an exorbitant level.
John G – You’re only helping my point about conflicting data here. You would assume that Philly-Raleigh would be much higher fare simply because US Airways flies it nonstop and can lead pricing in that market. But in Q4, US Airways had an average fare of $181.84 in Boston to RDU while Philly to RDU was only $136.03! (I’m pulling data from masflight.com using DOT data.)
It’s true, the walk up is higher in Philly to RDU versus Boston to RDU, so look at the advance purchase fares. Philly to RDU is cheaper than going from Boston. Every market has a different dynamic and that’s why it’s so hard to predict exactly what fares will do.
Brett, it’s not hard. Airtran serves RDU-PHL as a connecting flight, so DL and US match their fares on connecting flights, which are low. People fly the connection to keep the fare down.
Every market has a different dynamic. But the one connecting feature is that legacy airlines jack up fares where they don’t compete with LCCs, and that still partly includes Southwest.
Try another one. Detroit to Charlotte, 7-day advance. CHEAPEST fare, even connecting, is $300. Nonstop is $445. Detroit to Raleigh, with a connection, is $120.
US charges $445 to fly from Detroit to Charlotte…but they charge $120 to take that same flight and then take another one to Raleigh.
Just like the other legacies. The idea that US is different is just wrong. This will only increase their pricing power.
Then again, the merger that should have been prevented is WN-FL. That merger is the one that will ultimately cost consumers the most.
John G – I think we’re getting away from the point here. Do legacy airlines price higher in markets without low cost competition? Of course they do. Does that have anything to do with fares going up in a merger between two legacy airlines? Not at all.
I agree completely that the Southwest-AirTran merger did more damage to low fare availability than any other merger (especially in smaller cities). But here we’re talking about bringing two legacies together with similar (though not identical) pricing strategies.
I vote that MTV bring back Celebrity Death Match and invite you and Chris Elliott to duke it out.
You might be a cranky flier but how much airline/travel experience do you have? And, what are your qualifications for refuting anything?
As someone with over 35 years in senior positions in the airline and travel industry, I can tell you and your readers that you’re missing significant subtlteies when you talk about mergers. I’ve been a part of mergers, acquisitions, and bankruptcies and the AA-US merger will, without question, move us to an oligopoly situation in the domestic industry. The difference between this and the past is that now we’re getting down to a very small number of controlling organizations. There WILL be less cities served, less flight frequencies in markets, and definitely higher fares. The latter will occur because there are less competitors to keep everyone honest—and Southwest will not be the savior because they are no longer the “low cost” carrier they once were. They’ve gone along with almost every fare increase floated by their competitors this year.
As Brancatelli basically said, [they’re not merging for the benefit of consumers, they’re merging for the benefit of themselves]. That is as fundamental a truth as there is.
Karl, I do not have the internal airline experience you state you have. However, I totally agree with your blog. As a consumer I cannot see any long term benefit for the flying public. I am very fearful of the future cost of air travel, availability, cities serviced, added new fees, basic customer comfort. Losing competition is NOT a positive thing for consumers. Never is. Candy coating the creation of a mega airline run by the likes of Parker , O’Leary (Ryanair) or someone similar will only lead to a bad future for air travel.
Karl, your opinion and others like us demonstrate that there is a large group of people who see the danger of this merger and are not buying into it. Keep up the good work! Refreshing to hear your opinion.
I prefer to see four strong competitive airlines instead if the fragmented mess we’ve had in the past. All the old business model produced was a string of bankruptcies and underinvestment.
Somewhere earlier in the train of comments, someone essentially said, “what would you prefer, two weak airlines or one strong one?” To Karl’s comment, that is the “fundamental truth” of this. and two weak ones will have a hard time competing with invigorated (due in no small measure to mergers) UA, DL and WN.
I too have been very much on the inside of airline mergers, bankruptcies and acquisitions. They are messy and there is a lot of dislocation and corporate and personal heartache. But the market drives the demand. And yes, these afford career and financial opportunities for lawyers, investors etc etc. But even absent the specifics (and emotions) of which airlines are merging with whom, it has been a fundamental fact of the US domestic market that there has been for too many years, too much capacity and not enough capital to support the “status quo.” America needs a strong aviation industry which means a full roster of strong competitors.
Will fares go up? Possibly…., particularly between what used to be competing hubs, but also for a host of possible reasons some of which have nothing to do with a merger. Will service go down? maybe some of that too. But ultimately, the market will force high prices and poor service to improve or get out. and merged carriers offer new opportunities to establish competing routes, city pairs (direct or through newly viable/expanded hubs) which in turn put downward pressure on fares.
As for Cranky’s credentials, careful slugger (yes, you Karl). He may have not been CEO at HP but he has worked on the inside and brings a refreshing perspective that is fed by an insatiable appetite to a) find out all he can about the industry and b) share it with others who love (for whatever reason!) this business. Disagree if you want but do so with your own supportable facts and perspective: don’t throw out ad hominem attacks which only demean what may otherwise be your own admirable credentials.
Keep it coming Cranky and readers. It’s a great debate if we can sustain it.
Gary, I certainly agree with you that it is not fair or appropriate top attack Cranky. He has allowed us, by means of establishing this BLOG, to exchange views, opinions and complaints.
Half the time Cranky and I do not agree on airline issues/matters, but I respect his comments, information and opinions. Everyone of us has the previlage and opportunity to have our say (within reason) on this Bully Pulpit.
I agree with Gary’s comment that “two weak ones will have a hard time competing with invigorated (due in no small measure to mergers) UA, DL and WN.” Consumers will pay the price sooner or later.
I’ve always liked this blog because Cranky straddles a line between the business side of the airline business and the customer experience side. While I think calling him a Parker fanboy is inappropriate, his admiration of Parker seems to be from a business side, hardly from a customer/flying public side where he does have a poor reputation. Its Parker’s challenge to transition US to AA’s level of premium services and will be interesting to watch.
But back to the topic, Elliott does a huge disservice to the public but thankfully there is high quality discussion such as this one that Cranky should be given kudos for facilitating.
I don’t recall any benefits for consumers from mergers except that none of the participants went under.
I still think it would have been better to merge two successful airlines; Alaska and US Airways. They could have provided great service from Hawaii to Europe.
I personally would support any reasonable plan that would be beneficial to consumers. Good service at competitive prices, servicing as many cities as possible should be the goal.
The problem, Mike, is that mergers aren’t about good service at competitive prices, serving as many cities as possible. Mergers are about making as much money for the airline as possible. It’s not intended to be beneficial to consumers.
A new National Aviation Commission (NAC) is needed now. FAA should be removed from USDOT (too busy with surface modes) and report to a new five-member NAC
that reports directly to the president. All federal aviation activity will be transferred to the NAC. The NAC will be accountable and responsible for national (internatio0nal aviation planning, policy, promotion of USA aviation around the world and vision for the future.
Respectfully,
Bill Shea
Woodland, CA 95695
One overlooked fact is that this will create a third airline with truly comprehensive coverage of the US which will certainly promote competition for those many who prefer to consolidate travel with a single airline.
Brett,
I?m not going to comment on the ?fares rising? or loss of service parts of your piece since many others already have, other than to say: I suspect the new AA will be able to increase revenues by grabbing business travel market share in lieu of drastically increasing fares. Of course that?s what everyone is banking on to make this merger worthwhile but I doubt Parker/Kirby will be able to boost revenues as much as they sold to AA?s creditors and union leaders.
The point I want to make is that, while criticizing another blogger for invalid assumptions, bad information and omissions of fact in his ?Merger-Bashing?, you employ your own set of unsubstantiated assumptions and fact omissions in your ?Merger-Shilling?. Let?s start with a few facts you omitted:
Fact 1: US/AW employees weren?t exactly happy before the merger. It?s doubtful that US Airways? employee relations are any better than AA?s, and might be substantially worse which reflects directly upon US Airways? management. Sure Parker tried to keep his hands clean by claiming he really wanted them to work out their differences amongst themselves, but he later admitted a unified contract would have killed US Airways? profitability. This merger saved him but he won?t have a fallback position this time.
Fact 2: US Airways, with your hero Parker at the helm, actually has a lower ACSI score than AA despite AA?s (in your opinion) vastly inferior management team, and its admitted blunders over the past decade. How does this support your assertion that AA?s customer service will improve more under Parker/Kirby relative to a stand-alone AA? Oh right, it?s the trend that matters, not the absolute numbers. Well the data you reference shows AA?s score is trending higher whereas US Airways? score seems to be bouncing around. In fact, AA was working hard (and spending too much money in Parker/Kirby?s opinion which is why VV is soon to be gone) improving customer service before the merger, and it?s just as reasonable to assume that AA?s customer service ratings would have continued to improve if AA emerged stand-alone.
Now for your assumptions:
Assumption 1: This merger somehow ?fixes? all the US/AW labor issues. This is far from certain as many of the most difficult issues are still unresolved, and in fact the merger could create even more issues since AA?s unions have even larger egos than US Airways? management and are notoriously protective. If the labor fight continues, customer service levels will suffer.
Assumption 2: Customer service will improve under Parker/Kirby because employee morale will improve. The AA managers with whom I?ve spoken are not overly impressed with their US counterparts who they say are intransigent. It?s been discussed on here before that AA flight crews and line workers are at best ?indifferent? to the merger, and if their US Airways? counterparts come in with the same attitude as US Airways? mid and senior level management (i.e., you lost, it?s our way or the highway) you can bet the labor troubles are only going to get worse. Furthermore, if Parker and Kirby continue to take this approach with labor negotiations then employees are going to be even more angry which will certainly impact customer service (a la UA/CO).
Assumption 3: Parker/Kirby learned from the US/AW merger and this time will be different (i.e., better). You always assume that this merger is going to be more like DL/NW instead of UA/CO or, more appropriately, US/AW. If the systems and process integration goes south, which it has every possibility of doing from what I?m hearing, then employee morale and customer service will certainly suffer (a la UA/CO).
Assumption 4: US Airways? management will maximize the new AA to its full potential. If the notoriously cheap Kirby decides he wants to run AA like an LCC, then employee morale and customer service will certainly suffer and eventually so will revenues. Your assumption is that Parker/Kirby are ?too smart to let that happen?; remember old habits are hard to break and I?m already hearing stories about US Airways? management wanting to do things on the cheap.
Bottom line: your assumptions regarding customer service levels, employee morale, and even fare / revenue estimates are tainted by your own biases and are likely to be as invalid as Chris Elliot?s assumptions. So what?s worse, ?Merger-Bashing? or ?Merger-Shilling?? Clearly you favor the latter.
I meant to link to an article in the FTW Star Telegram regarding how Parker is dealing with the Eagle pilots.
http://www.star-telegram.com/2013/07/09/4991956/american-eagle-pilots-warned-they.html
Realist – I can’t quite figure out why you continue commenting here, because you seem to think I have no credibility with anything. Why waste your time if that’s the case?
A lot of this is just regurgitating the same arguments, so I’ll just focus on your bottom line instead of rehashing the same stuff over and over again.
From what I can tell in your comment, you’ve decided that my beliefs aren’t valid because you’ve talked a few of your buddies in current management at American and the merger is already going down the wrong path. This deal hasn’t even closed yet, so some of the specifics you cite around things like system integration going south are laughable. It’s far too early to know exactly how this is going to go.
We do agree on one thing, shockingly enough. If US Airways goes in there and says “it’s our way or the highway” then this merger is going to have serious problems. US Airways has readily admitted that it plans on adopting a lot of American’s systems and it will need to act more like a global carrier than what US Airways is today.
But at the same time, if US Airways goes in there and says “whatever you guys think is best will work,” then it’s doomed even more. There is a delicate balance.
It is not easy to bring two huge companies together, and it can go wrong at several points along the way. The difference is that you have already doomed this to failure whereas I’m far more hopeful that it can be done well.
Will the airline do everything perfectly? No. And if management makes a stupid mistake, I will gladly jump on them for it. But I have seen nothing so far that leads me to come to the same conclusion you do – that all is terrible.
I put absolutely everything out there on this blog. My background is readily available as is anything that an airline has offered me. I’m an open book when it comes to my involvement in this industry. We can’t say the same about you. All I know is that you have a lot of anger and bitterness that comes out in every comment, so I can only assume that you have some connection to American management, something that makes this very personal for you. (That is, if you aren’t a part of American management itself posting stealthily.)
In ten years, we can all look back on this and point fingers about who was wrong and who was right. But today, this is my opinion based on the evidence at hand. And the good news is that this is my opinion blog, so I can do exactly that.
The merger will be great for AA, US and their stockholders. Any elimination of competition at this point will lead to further big price increases. Look at Houston and how this already high fare city has seen prices skyrocket since the United merger–and United was a bit player in Houston before the merger! The United merger coupled with the lack of fare competition from Southwest (as used to exist just a few years ago). In my uninformed opinion, the AA employees are kidding themselves when they swoon as they listen to Doug Parker sweet talk to them about how wonderful things will be after the merger. The first little crisis (invented or real) and the layoffs at AA will come fast and furious. Certain AA/US hubs will join the PIT club–empty shells of their former selves only filled with airline executive promises of sunny skies ahead. Whether it is the price of oil or further reduction of Wright Amendment restrictions…whatever… and the layoffs will come. The ink of the United merger had barely dried when the layoffs at United began. Ask the folks in Memphis about promises made by airline management trying to get govt approval for mergers? How’d that work out for them? Learn from history folks: Merge. Layoff and raise prices. Repeat.