Alaska Airlines merging with Virgin America reminds me of the AOL / Time Warner merger

May 23, 2016 on 12:48 pm | In Airline News, Airlines Alliances, Mergers and Bankruptcy | No Comments

When AOL merged with Time Warner to become an even bigger media company, a primary reaction was a dot com bubble was buying a multi-generational colossus.

But others who paid attention were quite a bit more concerned in the dissonance between the two companies in terms of leadership and culture.  In short, they were incompatible and didn’t understand each other.

I understand the desire for Alaska Airlines to buy an airline.  They are in a “eat or be eaten” world and presently look very attractive as a hors d’oeuvre for a much bigger airline.  So buying someone lets the airline continue to exist rather than become food for another.

Pardon me.  This merger is nuts.

The airline fleets are entirely at odds with each other.  The service products are entirely at odds with each other.  The networks are somewhat at odds with each other and where they aren’t . . . it doesn’t mean Alaska Airlines is going to pick up the customers from a consolidation point of view.

The company cultures are way at odds with each other.  Alaska Airlines has a multi-generational history and a very unionized, very conservative airline culture.  Virgin America is the millenial who just turned 24 and thinks they should be a vice president in their first job.

What bugs me more about this is that no one seems to be calling anyone out on this.  That alarms me.  Analysts and everyone else shouldn’t like this merger at all.  It doesn’t speak to merger synergies and it doesn’t look like a merger that is easily accomplished which means it looks like one hell of an expensive merger.

In the face of incredible and record setting airline profits in the past 2 years . . . no one seems to care very much.

And that’s what scares me about this industry.  It appears to be losing its focus again.

 

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Mergers: Success and Failure

May 15, 2014 on 4:25 pm | In Mergers and Bankruptcy | No Comments

In the airline industry, mergers are a mixed bag of successes and failures.   Continental Airlines, for instance, nearly died twice due to poorly executed mergers.  Northwest Airlines was impacted for years and years from its merger with Republic.

In more recent history, those mergers have been more successful such as US Airways (from America West and US Airways) and Delta (Delta and Northwest).  The jury remains out on Southwest and Airtran (although this is trending towards success) and US Airways and American Airlines.  Sadly, I think the trend on United is that it is failing as a merger.

Delta is the rock star of airline mergers and I think there two great reasons why.

First, Delta engaged in an airline merger that built a powerhouse network.  Delta and Northwest had hubs that were truly complementary and which brought together a strong domestic network and a strong international network.

That union of networks provided genuine revenue synergies that you rarely see in a merged airline.  The networks supported each other and built upon strengths and didn’t merely see capacity reduction on common routes.

The second reason Delta hit the right pace is financial.  This airline watched its capital costs and set financial targets for performance that, for the first time, included paying for the cost of capital at an airline.  Instead of buying all new aircraft, the airline has managed its fleet carefully using aircraft that had low capital costs but which also provided near competitive fuel efficiency.

The airline also managed its revenue appropriately by focusing on doing something that my own father was a vocal advocate for:  treating each city pair and route as a business that should be profitable.  Instead of asking that a sum of routes make some kind of profit, Delta expects its routes to ultimately become profitable or to be removed from its system.

The airline is no loner focused on being the biggest airline nor the airline with the greatest frequencies.  It’s focused on being the most profitable airline and managing to that goal by ensuring what it does brings a return on investment to the company.

And who embodies this same kind of approach?

Definitely Southwest although they continue to be on my watchlist.  Before anyone says it isn’t the same Southwest Airlines from 20 years ago, let me offer this:  I wouldn’t want it to be.

Southwest does watch its routes carefully still and does work hard to ensure it’s city pairs are profitable.  However, they are clearly going more network than ever before and I do wonder if the complexity is going to overwhelm their good senses.  Time will tell.

I think the American Airlines / US Airways merger has the potential to be more profitable than Delta in time.  And I think it will have one key advantage over Delta:  Better aircraft.

Delta is walking a very fine line on its fleet ages and will be in danger of getting into trouble from a fuel spike as a result.  American will have one of the newest, most fuel efficient fleets around and that will help mitigate against fuel spikes quite a bit.

United, I think, is a growing failure and the truth is that while I think this has a great deal to do with poor management, I also struggle to find a compelling argument for merger these days.  The synergies don’t seem to be there and I don’t see the two parts adding up to a sum greater as a whole.  The jury may still be out on this merger but the jury foreman is taking final votes and it’s not looking good presently.

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More on the gates: The City of Dallas blindly drives towards a brick wall

May 7, 2014 on 1:21 pm | In Airports, Mergers and Bankruptcy | 1 Comment

The City of Dallas promises a decision on the Love Field gates held by American Airlines at this time.  Their plan is to have a briefing on the LEK Consulting report, an executive session briefing by the City Attorney and then there will be an open discussion.

In my opinion, the City of Dallas is marching blindly towards major lawsuits from a number of parties.  The City Council has apparently chosen to believe that the sudden demand for these gates means they get to be the big players.

Careful what you ask for.  Airlines have vastly more powerful legal resources and the US Justice Department is never amused at amateur hour getting in the way of a Justice Department decision.

If Dallas chose to acknowledge the lease currently held by American Airlines and permit a reasonable sub-lease, it would be ironclad in its ability to withstand challenge.  Maintaining the status quo, so to speak was its safe and legally appropriate choice.

By choosing to dangle these gates around on the pretext of benefiting The Citizens, Dallas is opening itself up to at least 3 lawsuits by my count.  Lawsuits that will cost Dallas and find Dallas having to bow to a legal settlement that could well be far worse than the present proposed outcome by The Leaseholders (aka American Airlines).

Evidently Dallas has a lot of extra money laying around these days and doesn’t mind the costs to its citizens.  It has already spent $50,000 on consulting to expose itself to these (potential) lawsuits.

If the City of Dallas wishes to promote the welfare of its citizens in this airport, the City should publicly and strongly advocate for a (needed) expansion of Love Field with gates held for common use by all airlines (including Southwest) on a periodic auction basis (annual is best).  That’s what would best benefit the city and certainly that is a “best investment” for The Citizens.

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Envoy: Only a matter of time

May 2, 2014 on 1:25 pm | In Airline Fleets, Airline History, Airline News, Mergers and Bankruptcy | 1 Comment

I honestly think it’s only a matter of time before the American Eagle spinoff, Envoy, is shut down.  Unable to get an agreement with the pilots, American Airlines has decided that Envoy will not receive new aircraft for new flying.

Instead, new aircraft will go to other regional airlines and Envoy now faces a 3 to 4 years dry season and a wind-down of the EMB-140 fleet.

In part, I do think that pilots wrongly played tough in their latest negotiations.  I think that getting an agreement that kept them in the game was a far smarter bet than to reject the agreement and find themselves in a business that has no prospects.

If I were a pilot at Envoy, I would move heaven and earth to get a job with a “major” and move on with life.  Only if I had retirement prospects over the next 2 to 3 years would I hang on.

The choices are slim out there.  Pilots cling to the idea that a pilot shortage will change things.

The so called pilot shortage has been spoken of for 10 years and never really has materialized.  Airlines have figured out how to deal with such shortages in ways that don’t count on pilots. I wouldn’t be betting on a shortage that has never materialized to date.  It’s possible that it will but betting on it only makes you look naive at this point.

I fully expect Envoy aka American Eagle will be shutdown in less than 4 years.  I do not think it has good prospects for a merger either.  They have nothing but a very senior pilot base that has shown intransigence towards the changes in the industry.  Why merge with that when you can just wait for the creature to die?

No, I think Envoy will join Comair (ex Delta) in a very undignified death.

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Jet Who?

May 1, 2014 on 12:30 pm | In Airline News, Mergers and Bankruptcy | No Comments

jetBlue hasn’t impressed me in a long, long time.  That’s a shame because this airline was quite literally the best funded, most successful start-up airline ever until the board panicked and asked David Neeleman to leave the leadership.

Neeleman has two qualities I really like when it comes to airlines.  He knows how to sport real opportunity and meet it with innovative solutions.  He also knows how to learn from mistakes.

Since his departure, jetBlue has worked on growing routes on some of the least profitable routes ever.  This airline has stuck to the northeast corridor and Florida like a bad stain on a white shirt.  There is no real growth and jetBlue let its relationship with American Airlines influence it’s strategies in ways that were laughable.

Laughable because American Airlines tossed aside that relationship instantly upon a change in the regime at AA.  There is no leadership at jetBlue, only stewardship.

With a still low cost workforce, an efficient fleet and an opportunity to draw upon the largest O&D markets in the world, it barely turned a profit.  Other airlines with far less advantages are doing dramatically better.

Without better leadership, I really don’t know where jetBlue goes.  I don’t even necessarily see added value in this airline when it comes to mergers.  Their position at JFK is somewhat valuable but only marginally so as that airport is less effective than La Guardia or Newark.   They have some valuable slots but they’re not ideal.

Spirit Airlines and Allegiant are going to nibble at their business from the bottom.  Southwest and SuperLegacy airlines are going to intrude on their marketshare more and more from the top and there is no great alliance to be had with anyone else in my view.

There was, in my opinion, one great merger opportunity but it would have required a very strong leader with a lot of courage.  I could have seen a merger between jetBlue, Virgin America and Frontier.  There was enough fleet harmony, relatively few seniority issues and core strengths in area of the United States to make that work.

The combined airline could have focused on the West via Virgin America and Frontier Routes using SFO, LAX and DEN and could have used jetBlue assets and strengths to make inroads in the midwest and tie together the East and the West.

But Frontier is going ULCC.  Virgin America has slowed its growth but improved its profitability greatly.  And jetBlue is just stagnant.

More importantly, I don’t see enough of a leader at any of those airlines and I don’t see enough of a leader sitting on the sidelines to make it happen.

jetBlue had its growth and had its momentum killed with the Neeleman ouster and that’s a shame.  It’s gone from jetBlue to jetWho? over the past 8 years and what a lost opportunity that is.

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Dallas and The Gates

April 29, 2014 on 12:44 pm | In Airline News, Airports, Mergers and Bankruptcy | 1 Comment

The City of Dallas’ transportation committee met, deliberated behind doors and then decided to push the Love Field Gate Issue up to the full city council yesterday.  I noticed that one particular person was involved in the hiring of L.E.K. Consulting to determine who should get the gates:  Aviation Director Mark Deubner

Deubner seems intent on making a hash of managing Dallas Love Field in ways that go beyond the norm for this day and age.  Deubner is the same person who made a hash of the negotiations surrounding the Braniff Maintenence and Operations building on Lemmon Avenue last year.   It’s become quite clear that Dallas Love Field won’t be thriving under this man’s direction.

I think that the City of Dallas getting involved in this issue is going to backfire on the city in ways that City Council Members can’t entirely imagine.  First and foremost, it’s unwise to interfere with the United States Justice Department and the disposition of antitrust issues.  Second, the City Council has no legal standing to determine who gets those gets short of crazy arriving on the door step.

And Virgin America getting those gates isn’t crazy.

If the cities of this country want to control their airports better and do more for their local citizens (aka The Consumers), then they need to stop making long term, exclusive leases on gate space.  Auction it off on short term leases or control it on a flight by flight basis.  Keep your flexibility and sell your city like nobody’s business.

But you don’t get to make deals and then revisit just part of them.  If the City of Dallas attempts to control who gets those gates under the present circumstances, they’ll be a part to several lawsuits in which the only sure loser will be the City of Dallas.  And it will cost the city millions of dollars with zero possibility of an outcome that benefits its citizens (aka The Consumers.)

In fact, when Aviation Director Mark Deubner hired L.E.K. Consulting, he exposed the city to a lawsuit right there.  He forced the city into taking a position by virtue of asking a consulting company to establish what was best for the city when the city didn’t have any business asking that question at this point.

So, now it is entirely possible that even if the Dallas City Council leaves the issue alone and permits the gates to be sub-leased, other airlines may well sue the city because it doesn’t fit anyone else’s notion of what should happen.

If Mark Deubner had left things alone and the City of Dallas had left things alone, they would have been fairly protected and any outcome would have at least benefited the citizens (aka The Consumers) marginally more than the present situation.  Neutrality was the smart play here.  And an abiding desire to interfere on the part of City Management has exposed Dallas to consequences that will cost a great deal of money.

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City Consultants Point to Southwest

April 28, 2014 on 12:32 pm | In Airline Service, Airports, Mergers and Bankruptcy | No Comments

City of Dallas consultants, L.E.K. Consultants, has come out saying that it’s Southwest Airlines who should get the 2 American Airlines gates at Love Field Airport.  Their rationale boils down to the idea that Southwest will drive the most passenger traffic for the city and that is therefore the most economically sound justification.

Their criticism of the Virgin America lease is that it removes some flights from DFW airport and transfers them to Love Field.

You can’t look at this picture statically.  Driving passenger traffic isn’t necessarily what’s best for consumers.  It may well seem good for the city but it won’t necessarily be good for consumers.

As foolish as I think some of the Justice Departments moves have been in the AA bankruptcy, they aren’t incorrect in the idea that these things should drive competition and benefit consumers.

The consultants seem to be squarely aimed at the idea that what’s good for a business will be good for consumers.  I would disagree with that.

What Dallas has needed most for a long time is competition on a variety of long haul domestic routes in and out of Dallas to a variety of destinations.  Southwest will provide some of that sorely needed competition on October 13th.  And they will provide it regardless of whether or not they get those gates.

Virgin America will provide some of that competition too although I would argue that we could use a more creative and extensive LCC than Virgin America.

What is most needed at Love Field is . . . wait for it. . . . more gates.  20 gates just isn’t enough.  Absent more gates, Southwest should be relieved of its burden to give up gates to get gates at DFW.  The competitve landscape has changed and, unfortunately, that change occurred before the end of the Wright Amendment on October 13th.

But 20 gates at Love Field isn’t enough.  Chicago Midway serving as an adjunct airport very similar to Love Field has 43 gates.  Would I suggest that Love Field should have that many?  No.

But the airport cannot serve any other airlines very effectively despite being open to do so at this time.  6 to 10 additional gates would make sense at the airport.

Barring that, Southwest should not be required to give up gates in order to use gates at DFW airport.  In making the deal to lift the Wright Amendment, the parties involved essentially constrained Southwest Airlines from growth in the DFW area.  In fact, the deal was designed to penalize Southwest if it wanted to grow by using DFW airport.

Isn’t it time to quit taking swipes at Southwest for not moving out of Love Field Airport more than 35 years ago when DFW was opened?  Southwest is a huge employer in this area and a huge tax contributor and excellent corporate citizen.  Why do we want to exact revenge against the very kind of company we should want in our community?

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Let’s take a shot at United Airlines

April 26, 2014 on 3:48 pm | In Airline News, Mergers and Bankruptcy | No Comments

Continental and United Airlines announced their merger in 2010 and here in Q1 of 2014, I think that their earnings are shameful.

That’s because they didn’t have any earnings in Q1.  Instead, they had $609 million in net losses.

It’s been 3 years since they were able to close on the merger and begin integration.  It’s been more than a year since they acknowledged that they had problems in their integration.  This picture isn’t getting better, it’s getting worse.

Jeff Smisek famously joked that by having Continental merge with United, he saved United from having to marry the ugly girl. The ugly girl was US Airways.

The ugly girl married American Airlines and reported a Q1 net income of $408 million.  With the ugly girl management (Doug Parker & Company) in charge and they’ve barely gone to work on AA operations.

Seems to me that marrying the ugly girl would have been the smart thing.

Everyone looked at US Airways and sneered.  Delta, Continental and even American Airlines.  But the ugly girl kept earning money.  Big money for an operation that was nominally second to every other legacy airline when it came to advantages.

Jeff Smisek worked so hard to avoid the ugly girl that he made a compromised deal and the merger of equals ultimately resulted in a merger where United effectively took over Continental.

Let’s be clear about something:  Continental Airlines, at that time, had a great and profitable operation.  United Airlines did not.

United needed someone to move it past the Tilton Era and into competition with Delta.  Continental didn’t want to lose in the merger game but it had options.  At the least, Continental didn’t need to be the most eager bride around. I always thought it prescient that Smisek saw Continental as the bride rather than as the groom.  Sometimes our statements speak volumes.

Three years later, United doesn’t have it’s act together and it shows zero signs of getting its act together. I fully expect Jeff Smisek and his team to start getting smacked around pretty badly by financial analysts.  Particularly since even Southwest Airlines who merged with AirTran at the same time has now found itself experiencing great joy in the financials game.  The airline with the highest costs (Southwest) is beating an airline with lower costs (United).  Badly.

What to do?

In an ideal world, Smisek would take stock of whose departments ain’t making it and hire new people.  Go hire the best and get them from whoever he can.  Pay them what they need to make a jump.  And do it now, not 6 months from now.

The ranks need to see a new sheriff in town (even if he looks like the old one) and the executive team needs to get the message that performance does, in fact, count.

United employees are, traditionally, their own worse enemy and they remain so today.  They will sink that airline to spite their own faces and the worst part of it is that they will take very good Continental employees down with them.

It will cost to fire some of that executive team.  It won’t cost nearly as much as keeping them on.  Right now, it’s costing $609 million a quarter.

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Virgin America at Love Field

April 25, 2014 on 11:41 am | In Airline Service, Airports, Mergers and Bankruptcy | No Comments

Well, in an unofficial official announcement by Virgin America at Love Field Airport in Dallas, Virgin America says it will get the two gates at Love Field.  The airline says it has approval from the Justice Department and American Airlines and needs only to get approval from the City of Dallas.

And I think they will get such approval, too.  Strangely, the City of Dallas has never treated Southwest Airlines with the deference you might expect.  Furthermore, I have long thought that giving the gates to Southwest (legal or not) was probably a step too far in creating an airport monopoly for a single airline.

Is Virgin America the right candidate?  I kind of think not.

I think that they are supported by the Justice Department because they favor LCC carriers and Virgin America purports to be that.

I think they are supported by American Airlines because they are a weak(ish) competitor to American Airlines.

Virgin America will only offer flights that are long haul and to major destinations such as San Francisco, Los Angeles and New York.  They might get a few flights in to Chicago, a route so dominated by American Airlines that they have near hourly flights.

American likely saw Virgin as having the least impact to them in the market.  If that’s true, then it probably isn’t that good for consumers in the DFW area.

Virgin America will be good for people who want to fly to Los Angeles, San Francisco, New York, Washington D.C. and Chicago.   It’s notable that AA is the powerhouse on all of those routes while Southwest Airlines will be starting similar routes out of Love Field on October 13 of this year.

But the frequencies will be low enough that it is unlikely to have impact on fares, I think.  To the contrary, I think that this is great for Virgin America as they will experience high yields from these routes as a result of the other two airlines maintaining course.

And this decision could drive me to write yet one more article on why we should auction off gates and slots at airports that are constrained.

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Pittsburgh is likely to be pi$$ed

January 28, 2014 on 2:00 am | In Mergers and Bankruptcy | No Comments

American Airlines is going to close the flight operations center that US Airways maintained in the Pittsburgh area in favor of the larger, more robust center in Fort Worth.  It’s a sensible move on the part of American Airlines but I fully expect Pittsburgh and Pennsylvania based politicians to, once again, decry mergers and their effects.

It is a loss for the Pittsburgh area.  The center employs about 600 people and while those people will in most cases be offered jobs in Forth Worth, that doesn’t do the Pittsburgh area any good.

There will be other impacts to other areas as well.  I fully expect Phoenix to get hit pretty good, for instance.  The reality is that American Airlines (Old) had a great deal of capacity and infrastructure in place.  There is little good reason to adopt a system from US Airways in the integration because in almost every case the AA system will be more robust.  This will lead to more displacement on the US Airways side.

The area where I think AA takes a hit is in servicing the aircraft.  Operations will see US Airways people come in and re-acquaint AA employees with how to run an ontime operation.  I suspect we’ll see the care and feeding of the A320 fleet be tasked over to US Airways stations in many cases as well.  There will be an integration and it won’t be just AA taking over US routes.  But it won’t be delightful for some operations centers such as Pittsburgh.

 

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Love not War

December 23, 2013 on 2:00 am | In Airline News, Mergers and Bankruptcy | 2 Comments

The flight attendant unions of American Airlines have decided to make love, not war, again.  There is a deal in place for the APFA (Association of Professional Flight Attendants) to represent the flight attendants of the merged airlines of US Airways and American Airlines.  The Association of Flight Attendants (US Airways) is leading its members to the APFA to get a new “industry leading” contract in place.

The AFA (US) gets to have some voice in their destiny in the process.

It’s great that they want to move forward and I have no doubt that working in unity would yield a better outcome than otherwise expected.

But I’m not sure these groups are really going to get along well.  It remains to be seen and I would love to hear from a US Airways flight attendant about their views on working together with the APFA and Laura Glading.

On the one hand, the APFA does very well in marshaling their membership to speak with one voice.  But they do tend to keep talking about 20 years ago and restoring things to the way they once were.

If I were in either union, I would want a union leadership that got me a good deal for today’s conditions in airlines.  And that doesn’t mean a bad deal or a concessionary deal.  It means a deal structured around how the airline industry is working today.  If I were a leader, I would make these my goals:

  1. Workplace flexibility:  The ability to work my job, earn my salary at a living wage and still be able to cope with a modern set of challenges in my family.  How about flight scheduling that is a win-win for both the airline (in terms of productivity) and the flight attendant.
  2. A salary rate based the hours I work rather than the size of aircraft I fly or the distance I fly.   Re-think how salaries should be paid so that the actual effort expended is in sync with the pay earned.
  3. The ability to actually take charge and deliver great customer service to my passengers without fear of retribution for daring to use my mind.
  4. Managers who empower rather than punish.  This is very, very important.  Give the flight attendants a chance to show what they can bring to the company and its financial performance.  They might possibly be the most important part to a turnaround.
  5. A retirement plan based on a modern model (401K) designed to minimize risk to my retirement but also reward my service time.  AA has some of the best financial managers in the world, ask them to go to work at finding a way for my union to experience real growth in my retirement.

And it’s time to realize for everyone, management, all unions and all other employees are all One Team.

Live by each others efforts and die by each other efforts.  Anyone who wants to go to “us vs them” should be sidelined.  This isn’t about just making the airline successful someday.  This is about making the airline successful as fast as possible and sharing the rewards of that success among all the members of the company.  The faster a real, consistent profit is earned, the faster everyone can start sharing in that.

I would want to get to that point quickly because earning more money in 2015 is a whole lot better than earning more money in 2018.

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Change, it’s coming

December 15, 2013 on 11:37 am | In Airline News, Airline Service, Airports, Mergers and Bankruptcy | No Comments

With the US Airways / American Airlines merger done this past week, everyone is speculating on change we can expect but in the Dallas / Fort Worth area, I think we can expect change in at least 4 different areas and it’s all good for those in this metropolitan area.

1)  American Airlines will slowly return to being the on-time, service oriented airline that it once was.  Parker & Company know how to fix operational issues and get planes going where they need to go.  I also think we’ll see the benefit of code-share flights through the system to destinations that might well yield lower prices.

2)  Southwest Airlines will be unchained on October 13, 2014.  On that day, Southwest can fly where it wants to from Dallas Love Field as long as it is in the domestic 48 states.  This will not only offer us opportunities to fly non-stop to major cities in the US but it will also put some competitive pressure on American Airlines (and other airlines) on routes to and from the DFW area.

3)  Ultra Low Cost Carriers will move quickly to find their toehold at DFW.  There is a lot of low-hanging fruit to be had in this area and Spirit Airlines has figured that out.  I expect Spirit, Allegiant and Frontier to all try to get gate space and establish operations in this area.  Those ULCC airlines will put some competitive pressure on both American Airlines and Southwest Airlines who both could use it in this area.

4)  While I think United has missed a huge opportunity in the DFW area over the past 2 years, I have noticed that Delta hasn’t.  I expect Delta to work itself more and more into the DFW area and I think they will do this both at DFW and Love Field airports.  Delta has been doing very well at establishing point to point flights and encroaching on its competitors territory.  They pursue a modest push into markets with the resources that only an airline such as Delta has.

Most airlines know that there is a limited time left to encroach in this market and if you think that airlines executives aren’t worried about Doug Parker, you are only kidding yourself.  They know what Parker and his team can do with the resources that AA has and that is a big reason why many attempted to sabotage this particular merger.  Parker was never a great threat with US Airways because of the limitations it imposed on him and his team.

I said it two years ago and I’ll say it now:  As soon as American Airlines declared bankruptcy, that was the time to move hard into the DFW area.  Several airlines missed that opportunity to become entrenched (Virgin America and jetBlue) and some saw the opportunity and grabbed it solidly in their fists (Spirit and Delta).

It’s all good for those living in this area or those wanting to fly to this area.  In one year, I believe we will see much better services and air fares that remain competitive.  Don’t kid yourself, however, those air fares won’t be predatory.  They just won’t be exorbitant.  So if you’re waiting for an uber-bargain of the early 2000′s, your wait will be fruitless.

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American Airlines orders new regional jets

December 13, 2013 on 2:57 pm | In Airline Fleets, Airline News, Mergers and Bankruptcy | No Comments

American Airlines didn’t waste time in making a new order for new regional jets.  The order is split between Bombardier and Embraer.

Bombardier CRJ900:  30 orders / 40 options

Embraer E-175:  60 orders / 90 options

The CRJ900 jets will go to US Airways wholly owned subsidiary PSA and, as you can imagine, PSA pilots are thrilled.  The Embraer jets are To Be Determined and, as you can imagine, the American Eagle pilots are way less than thrilled.

I honestly can’t read the motives of American Eagle pilots.  That airline is grossly overburdened with expensive 50 seat (or less) regional jets that will be going away.  Make no mistake, even if the capital costs are exceptionally low for keeping those planes, they are going away.  They are inefficient, costly to maintain and frequently break down at this point.  They are becoming quite old and they don’t fit the modern world model.

American Eagle pilots, represented by ALPA, haven’t found an agreement with American Airlines.  American Airlines president Scott Kirby thinks they can put a deal together and I think that . . . maybe not.  AE pilots are very well paid and many have decided to make a career at that airline instead of doing what most other pilots at other regional airlines do after a few years:  transition to a mainline airline.

I think AE pilots want to be paid like mainline pilots with mainline schedules.  If true, I think that American Airlines has a solution for that problem:  sell or shut down the airline.  In case anyone wasn’t watching, there really aren’t any buyers for expensive regional airlines with old equipment.  Comair anyone?

I feel bad for the AE pilots because they have a lot to lose and they don’t have much bargaining power.  If a deal is made, I would make sure that AE pilots have the right to upgrade into mainline AA operations for the next 10 years.  Pilots who stay in the regional airline game for their career can expect to see bankruptcies, consolidations, strikes and layoffs that are reminiscent of an era already gone in mainline operations.  Fighting won’t change that.

The best favor a union could do for those people is find a way for them to move up and out.

Oh, and those Embraer jets that just got bought?  They aren’t going to be committed to American Eagle until and if there is a contract.  Wait too long and they’ll go to someplace like Republic who already operates them and who already works for American Airlines.

 

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First Steps

December 12, 2013 on 12:53 pm | In Mergers and Bankruptcy | No Comments

Yesterday, I made note that Doug Parker has put the right foot forward at the start of his leadership of American Airlines.  Let’s take a look at those moves.

Parker has promised salary transparency and that will mean a great deal to employees at American Airlines.  US Airways employees are already used to Parker being very candid about his salary but American Airlines employees got a lot of “surprises” over the past 13 years or so.  Surprises that never looked good and always sent the wrong message.  I think that AA employees are going to find Parker & Team very refreshing when it comes to transparency.

Reserved parking at headquarters for top executives has been eliminated.  This will seem like a small thing but it is a wildly different attitude from that which existed at AA post-Robert Crandall (Crandall was fairly egalitarian in his regime but things changed after that starting with Don Carty).

Security guard for the executive offices have been dismissed.  Can you even imagine needing a platoon of security for executive offices?  Yet, that was reality and represents the “fortress” mentality of Gerard Arpey’s reign.  (Mind you, you can’t go strolling into the executive offices to do whatever but that’s basic corporate security at any large corporation and appropriate.)

Before I go on, I want to point out that those three items alone could have been instituted by Tom Horton and his team the day they took control of American Airlines into bankruptcy.  The fact that things like that did not happen is why I never felt Tom Horton was the right man for the job.  Leadership really does start at the front, not the back.

Parker will surprise people with more things similar to this.  For instance, I expect he will make 1 to 2 trips a month out into the field to hold informal discussions with employees.

And expect Parker to ensure his executive leadership follows his example.  You won’t see executives hiding executive offices, never venturing out into the field.

This is why I think Doug Parker can turn American Airlines into a world class leading airline.

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Yes, I noticed

December 11, 2013 on 10:24 pm | In Mergers and Bankruptcy | 10 Comments

It’s possible that some readers may have noticed my absence.  A Great Illness took hold of me.  Then a Great Ice Storm.

So, more tomorrow but a comment or three today:

OK, so, everyone got what they asked for.  It’s often been said that you should be careful what you ask for.

I think Doug Parker is off on the right foot in setting  a leadership tone for the new American Airlines.  I think the American Airlines employees will appreciate it both for the tone as well as the respect it shows to employees.  I don’t know what the response will be from the US Airways people but I hope it’s tasteful.

Tom Horton got paid off.  That part isn’t pretty but it was necessary, I think.  Now, he’s gotten his payoff, it’s time to go.  The sooner, the better.  I’ll also now say that I think Tom Horton rose above my expectations in all of this.  Although I didn’t care for his initial comments after the merger was announced, he did settle down and, more importantly, he did work earnestly to make the merger happen.  That was significant and meaningful and he should get credit for it.

I think it was a gracious and even pleasant gesture for Bob Crandall to come out for the birth of the New Company.  Seeing photos of Crandall, Horton and Parker at the beginning of the new company made me feel like this newly merged company has a very real chance at greatness.

For debtors, this is the best outcome anyone could get from a bankruptcy.  Be thankful for it.

On the subject of the new American Airlines livery . . . I will buy Doug Parker the best Mexican dinner I can find in the Dallas area if he will just make that ugly design go away and bring something that A) is good design and B) is less expensive to paint on the over 600 new aircraft coming to AA.

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Take a moment

November 27, 2013 on 10:47 am | In Mergers and Bankruptcy | 9 Comments

The US Bankruptcy Court has approved American Airlines’ exit from bankruptcy and merger with US Airways.

Employees of both organizations:  Take a moment and enjoy what this means.

On December 9th, a new airline is being fashioned from two old airlines of which both have a very old, very long history.

I truly hope it is both successful and model for both service and price.  I honestly do.  I hope that the employees of both groups will enjoy higher wages, better working conditions and feel generally more beautiful and handsome.

But a word of caution too:  Don’t screw it up with greediness.

<whispering> I’m talking about you flight attendants in case you didn’t realize.  </whispering>

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Temporary Restraining Order: AA/US Bankruptcy

November 25, 2013 on 11:56 am | In Mergers and Bankruptcy | 1 Comment

UPDATE:  The judge will be issuing a ruling sometime between close of business today and close of business Wednesday.

Original Post:

There is a private antitrust lawsuit against American Airlines and US Airways being conducted by two private attorneys who have long instituted lawsuits against airline mergers.  In a hearing today in US Bankruptcy Court, Judge Sean Lane is hearing arguments for and against a Temporary Restraining Order against a merger as well as other arguments for and against whether or not he (Judge Lane) can approve the merger.

The plaintiffs in the private lawsuit certainly have the right to ask for a TRO but they also have a right to get denied as well.  Asking for a TRO at this late date is, at the minimum going to raise many eyebrows since a TRO is generally requested for emergency situations.  This merger has been on deck for a long, long time.

Not only do I think the TRO will get denied, I think we’ll see the plaintiff attorneys get walked around the courtroom on the facts behind their contention.  The truth is that while there are “plaintiffs” these attorneys represent, this lawsuit is their lawsuit.

Furthermore, a variety of competent parties have already been engaged on the merits of this antitrust trial by virtue of what played out in the Department of Justice lawsuit most recently.  Plaintiff attorneys are going to argue that issues go unaddressed and real harm is taking place which suggests that the Federal Judge in that lawsuit didn’t pay attention (and the record reflects the exact opposite) and that the Department of Justice isn’t a competent representative for the citizens of the United States.

The TRO won’t be approved and the merger will be approved.  The plaintiff attorneys will stand in front of cameras and microphones and decry the great harm happening to everyone.  Journalists will yawn, write their stories about today and the big news will be the merger is approved and ready to be consummated.

Count on it.

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Love Field Gates

November 16, 2013 on 2:00 am | In Airline News, Airports, Mergers and Bankruptcy | No Comments

Delta wants to take over American Airlines’ gates at Love Field Airport in the worst way.  They say they can run 18 flights a day to major Delta hubs and put operations in place quickly to do so.  Delta argues that it can provide very real, substantive competition at the airport.

Southwest, of course, wants the gates as well.

No doubt others will throw their hats into the ring too.

In less than a year, airlines will be able to operate unrestricted domestic flights from Dallas Love Field to anywhere in the continental United States.  That’s a big market for Dallas suddenly.

But the DoJ wants to foster LCC participation in these give ups and that would preclude Delta (and Southwest, in my opinion) as well as other “legacy” carriers from obtaining those gates.

This is why I think that any airline who has less than 20 percent market participation at an airport ought to be able to have a chance to acquire those gates at Love Field and elsewhere.  It invites the most qualified new entrant.

What Dallas doesn’t need is a ULCC carrier flying into Love Field airport a couple of times a day.  What Dallas *does* need is real competition which an airline such as Delta could provide in very real terms today.

That’s very attractive to me, a person who lives in Dallas.  This city doesn’t have much competition.  It has American Airlines who dominates DFW in a way that dwarfs the dominance at Washington Reagan National that US Airways enjoys.  It has Southwest who dominates Love Field in an even greater way.

So, yeah, real competition from a real, national network airline who can offer real price competition is an attractive idea.

So, let’s not preclude “legacy” airlines.

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The Settlement: Part 3

November 13, 2013 on 1:01 pm | In Airline News, Mergers and Bankruptcy | No Comments

I smell a small mouse in this mix.  That mouse, hardly a rat, is Virgin America.

From the Department of Justice announcement on the settlement of the lawsuit with US Airways and American Airlines:

“Rights and interests to two airport gates and associated ground facilities at each of  Boston Logan, Chicago O’Hare, Dallas Love Field, Los Angeles International and Miami International.”

I think that someone wants Virgin America to get access at the airports it has openly spoken of.  Virgin America is a service darling in that offers a superior inflight service experience combined with an LCC pricing scheme.

I think that some or all of these cities will find Virgin America getting the use of these at a pre-arranged price.  The DoJ will come off looking like a prince for getting Virgin America, arguably the smallest of LCCs right now, a place at the table.

But the airline, American Airlines, could care less. Virgin America isn’t big enough to introduce pricing power into those markets the way a larger, more established national airline could.  It’s a deal that, if it works out that way, does nothing to impact American Airlines and which does nothing to substantially introduce competition.

My guess:

I think Virgin America will acquire the gates and facilities in Los Angeles, Miami and Chicago.  Maybe Boston as well.

Virgin America already has a proper footprint at DFW airport.  So I do wonder who might be interested in those gates at Dallas Love Field.  It would be egregiously bad to award those to Southwest although I’m sure that Southwest would love to have them.

I actually believe that Southwest is constrained from getting those gates but readers are free to correct me.

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Low Cost Carrier

November 11, 2013 on 4:52 pm | In Airline News, Mergers and Bankruptcy | No Comments

After thinking about Southwest filing an amicus brief in the AA/US/DoJ lawsuit all day, it has occurred to me that Southwest plans to argue how:

  1. Southwest is the pre-eminent low cost carrier in the country
  2. It needs slots in Washington D.C and New York to wield such an influence in those markets
  3. Only Southwest can deliver competition against these massive giants

And then to complete the bizarre moment, I would imagine that American Airlines and US Airways will then have to argue that Southwest is not a low cost carrier and doesn’t offer nearly as much competition as people think.

At which point, the judge’s head will explode, I imagine.

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