Wouldn’t you like to be Delta’s friend? Or Southwest’s?

November 8, 2013 on 1:00 am | In Airline History, Airline News, Mergers and Bankruptcy | No Comments

Southwest Airlines and Delta Airlines and others have been running around playing politics with the US Airways / American Airlines merger in ways that leave a person wondering what, exactly the agenda is.

The truth is that the airline industry has never been good at acting in its own interests.  To the contrary, the US airline industry is expert at just one thing:  shooting itself in its own foot.

And they have a tradition of doing this that stretches back 60 years or more.  This isn’t just a deregulation thing.

Airlines cannot resist interfering in things that may result in some benefit to them.  And the worst part is that they always do it in a very clumsy manner which finds them not only not getting what they wanted but losing too.

Both Southwest and Delta benefited a great deal from mergers.  Both did not have to enjoy friends such as American Airlines or US Airways interfering in the arranged marriages.  (Yes, I’m well aware of US Airways hostile bid for Delta and that is quite different.)

These airlines run the very real risk of impacting their entire industry in a way that would prohibit further consolidation and even invite investigation into divestiture by the very largest airlines.  It’s no small thing that both Delta and Southwest are a part of that club of large airlines.

 

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Avianca: The difference private industry makes

November 6, 2013 on 12:51 pm | In Airline News, Mergers and Bankruptcy | No Comments

South America is a land where countries often prop industries far past what is appropriate and generally to maintain jobs for constituencies.  This has been what Italy has done with Alitalia, what India has done with Air India and what Argentina has done with Aerolineas Argentinas.

It’s what Colombia could have chosen to do with Avianca and didn’t.

The Wall Street Journal has a story about Avianca’s comeback over the last 20 years which is culminating in Avianca’s stock being listed on the New York Stock Exchange and which will raise $500 million for Avianca’s expansion plans.

Avianca is an example of why private industry is what saves airlines, not governments.  There are many examples in the airline industry similar to Avianca but Avianca represents exactly what airlines such as Alitalia need.

Aggressive, entreprenurial restructuring that reduces costs and creates opportunities for genuine growth.  There isn’t a government known to man that has such talent.

Avianca’s salvation came from an industrialist who saw opportunity in the ashes of Avianca’s bankruptcy.

Alitalia isn’t saveable.  But should the airline go away, there is enormous opportunity for airlines to come in and provide employment with thriving enterprises.  The wages aren’t going to be as high, that’s true.  No airline that is competing today does offer the kinds of wages and job protection experienced by Alitalia employees.  And none should experience such.

With all of that said, I also don’t expect Italy or India or Argentina to embrace reality any time soon either.  It’s possible that Italy may be forced to let go but only because of the obligations Italy is under as a function of debt rescue performed by the European Union.

Otherwise, Italy would pour money into Alitalia no matter what was demanded of them by anyone.

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Settlement Talks

November 5, 2013 on 1:00 am | In Deregulation, Mergers and Bankruptcy | 1 Comment

I have a friend who bought American Airlines stock at 50 cents per share. That friend asked me what on earth was going on that the stock rose to just over $10 per share.

These are strange days when an airline stock is actually worth quite a bit while in bankruptcy, on hold with a merger because of a lawsuit. Strange days indeed.

The answer is that there are settlement discussions going on with the Florida Attorney General and with the Department of Justice.

The talks with the Florida AG are to build momentum and whether or not a settlement is reached there is really immaterial.

The talks with the DoJ are serious and Attorney General Holder has come out with bluster stating that the airlines would have to sell assets to get a settlement. The airlines wisely declined to make a comment.

In the world of lawsuits, he who is quiet is usually the one who is winning.

American Airlines and US Airways are very quiet on this.

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Friends of AA / US

November 4, 2013 on 1:00 am | In Mergers and Bankruptcy | No Comments

American Airlines and US Airways have so many different parties clamoring to be their friends in court, I’m reminded of my daughter who has over 700 Facebook friends.

People writing supporting briefs doesn’t mean that American Airlines and US Airways wins by the volume of support. The law is the law is the law. And the law in this case is somewhat tightly constrained. Decisions in this case must be made on what market conditions are today, not what they were 5 years ago.

So, if it feels like the argument is won, it is not.

The win in the Department of Justice lawsuit against these two airlines comes from making an argument that centers on what today’s conditions are and, at best, supporting it with comparisons to market conditions that existed in the past.

In other words, you can’t argue that just because the DoJ didn’t file a lawsuit over the last 3 mergers, they shouldn’t now. That isn’t even an argument.

But you can argue that market conditions and competition isn’t materially different from what it was 5 years ago and when those mergers were allowed, outcomes favored more competition rather than less.

Likewise, the DoJ can’t just say “less airlines, more costs”. And arguing that air fares are up isn’t valid either. In fact, arguing that air fares are up and airlines are earning profits this year would be stupid argument. The industry will point out the tens of billions of dollars lost over the last 35 years in aggregate.

One good year does not make for a turnaround.

The DoJ must be able to prove that competition will be reduced AND as a result, the consumer will be harmed. Consumers are not harmed automatically from higher prices. In fact, over the last 5 years, since the start of the Great Recession, lots of items rose dramatically in price. Gasoline is one item that comes to mind. So did milk.

Air fares rose because airlines A) stopped trying to buy market share at any cost B) returned to operating each route as a profitable enterprise and C) consolidated to reduce costs.

A healthy, competitive airline industry that charges a higher air fare may well be in the consumer’s best interest.

Neither side has a sure win here. The airlines have more maneuvering room than the DoJ but the DoJ isn’t without some firepower and it doesn’t have as great a burden of proof as many think it does.

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Mediation might be a way out

October 29, 2013 on 1:00 am | In Airline News, Mergers and Bankruptcy | 4 Comments

Often the key to getting a deal done is finding a way for one or both parties to save some face.

The worst thing to happen in the Department of Justice lawsuit against American Airlines and US Airways is that the DoJ acted in a manner that immediately backed themselves into a corner.

Since that silly act, roughly 3/4 of the entire world has come out in support of the merger between the two airlines.  I’m pretty sure that Sri Lanka will be filing its amicus brief in support of the merger in a day or two (note:  that’s *humour* in that last line.)

A mediator has been assigned to this case and it is a way out for the DoJ.  With a mediator in place, a deal could be negotiated where the DoJ gets a token concession and is able to exit this lawsuit without appearing to have failed.

It’s failure that people fear the most in these things and lawyers have a big ego that goes against failure.  But this latest lawsuit may be one of the most unpopular acts the DoJ could have engaged in for 2013.

The mediator can help facilitate a deal but it also takes on the onus of having put a deal into place.  The DoJ can be seen as not giving in (entirely) and the airlines get their merger.

The deal that wins is that slots in Washington D.C. are given up and guarantees of service are made for a certain time period in other areas where competition is slim(er) as a result of  the merger.

My personal estimate of probability for a deal prior to the mediator being assigned was about 20%.  I would now raise it to 60%.

One item of note:  Were the DoJ to lose this lawsuit, it could lose all of the lawsuit.  Which means no slot giveups anywhere.  That’s a failure that would look very, very bad to any outside looking in at the DoJ.  There is some incentive for a deal.

 

 

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US Airways down a bit

October 23, 2013 on 1:00 am | In Airline News, Mergers and Bankruptcy | No Comments

US Airways 3rd Quarter results were down compared to the previous year and primarily due to expenses that are currently resulting from the anticipated merger between it and American Airlines.

If you think either airline isn’t burning a lot of cash right now due to the hold up from the DoJ lawsuit, think again.  US Airways’ one time expenses were $151 million for the 3rd quarter and while I don’t like talking about “would have beens” related to these kinds of expenses, let’s just pause and consider that a great deal of those one time expenses were related to its “hold” on the merger.

Considering that US Airways has less revenues than Southwest Airlines, the $216 million net profit for the 3rd quarter is exceptionally good and shows that that airline continues its strong record of providing profits.

 

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Billion Dollar Baby

October 22, 2013 on 1:00 am | In Airline News, Mergers and Bankruptcy | No Comments

There have been a number of airline industry watchers who have private and (sometimes) publicly expressed concern that American Airlines’ case with the DoJ on the subject of competition was hurt by American’s ability to turn a profit right now.

American Airlines has indeed earned a Q3 profit and it was a respectable one.

Delta Airlines had a Billion Dollar 3rd Quarter.  $1.6 Billion to be exact.

While you digest that news, consider that Delta doesn’t have the lowest costs around this town.

So, when we consider that the airlines of size (Delta and United) and what they’re able to produce for themselves in profit, consider the size of the warchest that that gives those two airlines.

And then explain how the much smaller American Airlines and US Airways are going to fare against those behemoths.

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Can a deal be made?

October 21, 2013 on 1:10 pm | In Airline News, Mergers and Bankruptcy | 1 Comment

There is now speculation that there might be talks going on between the Department of Justice and American Airlines and US Airways to settle the lawsuit the DoJ has brought against the two airlines.

The speculation is largely born out of the fact that Texas Attorney General Abbott got a “settlement” deal with the two airlines and was made happy.

The truth is that that settlement was window dressing.  The Texas AG got nothing past what AA had already offered in many discussions.  The offer was merely put on paper and signed.

I do not think there is a deal to be made with the DoJ and I think those hoping for it are ignoring the fact that the DoJ has backed itself into an ugly corner by even filing the lawsuit.  There were other choices they could have made in August.  One would have been to enter into negotiations for what the DoJ would think necessary to improve competition.  The fact that that was’t the next step speaks loudly to the intent of the DoJ.

Lawyers are people and the leaders of these lawsuits didn’t get where they are by changing their minds.  The amount of ego that would have to be swallowed by both DoJ Attorney General Holder and the lead Deputy AG Baer would be very large.  It’s hard to imagine either man swallowing such a change and it’s hard to imagine a deal that allows either to save much face in the process.

Look for a trial starting on November 25th.  I still think the airlines win this trial and I think that will be even worse for the DoJ.  The Department of Justice is free to shock and surprise me with a deal but if one comes about, it won’t substantially change the merger between the two airlines except for in Washington DC at Reagan National airport.

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The TWU is just a hot mess

October 9, 2013 on 1:20 pm | In Airline News, Mergers and Bankruptcy | No Comments

The Transport Workers Union represents thousands of employees of American Airlines and US Airways (and several other airlines such as Southwest where they recently had an odd scene go down as well).  This union is under new management and they’re just itching to get in the way of themselves.

Most recently, the TWU filed to become a party to the lawsuit the DoJ has filed against the merger of American Airlines and US Airways.  The technical term is intervenor and it means that they want to become a part of the lawsuit as the plaintiff or defense.  In this case, they wanted to be the defense.

US Airways and American Airlines both filed objections to that stating that, in this case, the TWUs interests were fully aligned with the airlines’ and therefore didn’t need representation.  The DoJ objected as well.

The truth is that no one wanted them at the table because who needs a union coming in late to the party on an accelerated court schedule?  Who wants an airline union showing up to be involved in such a lawsuit under any terms.

No one.

So now the TWU wants to be an amicus to lawsuit so it can file it’s opinion.  This is likely to be granted as several other parties are already “interested friends of the court” in this trial.

The TWU has been under fire from other unions.  Most recently, the Teamsters attempted to grab a good portion of their membership away from US Airways and American Airlines and they barely fought them off.

It’s feeling threatened and insecure and its leadership wants to show it can play with the big boys.

The thing is, it can’t.  It can’t even keep its membership all that happy despite a very good deal negotiated for them in the merger.  The TWU is a hot mess and needs to go get its own house in order instead of interfering in issues it has little grasp of.

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Pressure is applied

October 6, 2013 on 1:00 am | In Airline News, Mergers and Bankruptcy | No Comments

Unions, particularly American Airlines’ APFA, are now putting pressure on other attorneys general in Florida, Virginia and Arizona to also engage in a settlement on the lawsuit filed by the DoJ.

So far, each is resisting.

I think that will change, perhaps.  Florida really hasn’t got a big stake in this lawsuit and their attorney general may feel the exceptional voice of APFA out of Miami in a short time.  Politically speaking, it’s not wise to go against pay raises for airline employees.  They come so infrequently that it is a major hot button.

Virginia is going to hold its position, I think.  But mostly because they do have a stake in air fair prices at Washington Reagan National.

Pennsylvania is exacting revenge on US Airways for what happened in Pittsburg, in my opinion.  That is a mistake as it could strongly affect how the merged American Airlines will treat Philadelphia in a merger.  But I think there is a deal to be had here and I think that this deal is Doug Parker’s to make.  The deal is to retain Philadelphia as a hub for a certain number of years with a minimum number of flights to be maintained.  Is that a problem?  No, that’s a good hub for US Airways and it should remain a good hub for the merged airline. It costs little to make that deal.

Arizona is protecting its stake as well and this time its with an attorney general who has a less than steller reputation.  The Arizona AG may well find exceptional political pressure applied here too.  Why?  Because pilots and flight attendants for US Airways are desperate for a pay increase and there are one hell of a lot of pilots and flight attendants in Phoenix.

Will the merged company retain its hub in Phoenix?  I think it will.  It has never been practical to operate a hub in Los Angeles or San Francisco.  Delta operates a profitable and beneficial hub in Salt Lake City.  United has Denver and Dallas is too far from the West Coast to be well positioned.  I think Phoenix stays although in a revised configuration.  Again, this is Doug Parker’s domain and he and his team should begin applying pressure and working with their unions to achieve a deal here.  I actually don’t think that the Arizona AG will  mind smiling and reversing his position if he sees his political fortunes dim with pressure.

Tennessee is just mad.  It’s mad about Memphis and that AG is actually politically isolated.  There is no deal here, in my opinion, but I also think their opinion and participation amount to nothing in the lawsuit.

Time will tell but right now the lawsuit proceeds, deals are being made and the US Department of Justice has little maneuvering room at present.  The DoJ will say that the fight is in the courtroom and isn’t a popularity contest.  They would be right about that but when your support abandons you over time, few people want to go into a courtroom and be your friend.

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Just do it already

October 4, 2013 on 1:00 am | In Airline News, Mergers and Bankruptcy | No Comments

Once again, it is rumoured that KLM-Air France may be in the running to merge with Alitalia of which it already owns 25%.

Once again, Alitalia is unable to financially succeed on any level despite its own government propping it up in anyway possible.  This is an airline given every advantage in its marketplace and which still fails regularly.

Italy is already posturing itself to show what an outrage it would be for a flag carrier to be taken over by French and Dutch.  But this time those who have money in the airline have signaled that they may find Air France-KLM to be attractive enough to be worthwhile.  Curiously, it was those same people who “rescued” Alitalia from Air France-KLM’s hands.

The merger will probably happen.  It probably will result in the Italian government wringing its hands mightily and trying to extort concessions like guaranteed full employment for all the Alitalia employees for the next 10 years.  Something silly like that will be demanded.

It won’t happen.

The difference this time is that Italy is in a very precarious financial position and has a particularly weak (OK, weaker than usual) government.  It won’t be able to stand up to powerhouse participants in the EU such as France and The Netherlands.  Countries that currently provide a fair degree of solvency to Italy.

But that doesn’t stop me from wanting to plead “Dear Mother of God just complete this merger and erase Alitalia from our memories for once and all time.”

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The Lawsuit: Part 43,987

October 1, 2013 on 12:39 pm | In Airline News, Mergers and Bankruptcy | 1 Comment

2nd Update:  The Judge in this lawsuit has also decided that the Department of Justice won’t get its requested stay and has to litigate the case on time.  It’s not a good day for those serving as plaintiffs in this case.

 

UPDATE:  Greg Abbott has announced a “settlement” in which the Great State of Texas will get what it wanted by legal agreement.

In other words:  American Airlines put in writing the promises it has already made long prior to the lawsuit nonsense.  AA will continue to serve 22 communities in Texas for at least 3 years.

The fact that the press conference was held at American Airlines facilities speaks volumes about this “settlement.”  I would imagine that AA just barely let him call it a settlement for face saving purposes.

The Dallas Morning News says:  ”Abbott denied that political considerations played a part in either joining the lawsuit when it was filed Aug. 13 or deciding to withdraw now.”

(more…)

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What’s relevant and who have you been talking to?

September 26, 2013 on 3:52 pm | In Airline News, Mergers and Bankruptcy | No Comments

US Airways and American Airlines want to know two things from the Department of Justice.

First, they want to know the details of what the Justice Department did in evaluating four previous airline mergers in the past decade.  The DoJ doesn’t want to give up this information and says what they did in the past is not relevant.  Only the current market conditions are relevant.

It’s true that the law says that mergers must be based on the hear and now essentially.  However, how that evaluation is done is another story altogether.  The airlines will try to make the case that by changing the “how” of evaluating mergers affects they outcome.

And they would be right.  One item that has been glaring to all since this nonsense began is that the DoJ chose to evaluate airport pairs rather than city pairs and dismissed the market power of LCCs altogether in that evaluation.  I think that US and AA will (rightly) make the point that in changing how an merger was evaluated, they changed the perception of the effects and therefore the DoJs suit has no merit since it did not use accepted practices that have provided analysis for mergers for a substantial period of time.

In other words, evaluated with the methods and tools, the US/AA merger would pass scrutiny because of the market conditions that would be uncovered by these methodologies.

Second, US and AA want to know who the DOJ talked to in evaluating this merger.  The reasons here likely have to do with two things:  They want to know the source of bias in how the DoJ chose to evaluate this merger and I suspect they think that some other airline or airlines were attempting to torpedo the merger.

What’s that?  You are shocked?  Shocked that some other airline may be attempting to arrange a clumsy backdoor outcome in the airline industry?

I’ve thought about this for 3 days.  I think that US and AA are on to something here.  And I think that it is jetBlue and/or Delta who may be playing that game.  If I put money on things, I would guess that Delta likely spoke unfavorably using its recent experience in doing its deal with US Airways over New York City (La Guardia) slots.  I think that Delta used its experiences with the DoJ during that last deal to color the market dominance picture with the DoJ.

I also think that Dave Barger decided to take advantage of a moment to portray jetBlue as a poor, underfed, uncared for LCC who never has advantages over anything.  Mostly because jetBlue would love to have some dominance at Washington Reagan National.  Take note of the fact that CEO Barger recently opined that US/AA ought to be made to give up all the AA held slots at Washington Reagan National if a merger is allowed.

I do believe that Washington Reagan National should be required to be “opened up” a bit by slot givebacks by both airlines.

I also think that any airline with greater than 50% dominance at any slot controlled airport should be required to lease out or divest themselves of slots to get under that 50% control.

But, hey, I’m a radical compared to the DoJ.

There is a hint of clumsiness in how the DoJ has gone about this over and over.  And it does smell of influence.  I also expect that, by now, US and AA have been told off the record of such discussions by those closer to the DoJ investigation.  If there has been influence, we’ll find out in a short while.  The airline industry has never been known for its ability to finesse anything.

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Market Share in NYC

September 24, 2013 on 1:20 pm | In Airline Service, Airports, Mergers and Bankruptcy | No Comments

In an unrelated story about United Airlines in the New York City area, some interesting statistics were noted by the Dallas Morning News.

The two SuperLegacy carriers, United Airlines and Delta, have 24.7% and 21.3% market share respectively.  No giant surprise but let’s look at what the next two airlines are in that market:

jetBlue:  13.3%

American Airlines:  12.3%

Yes, jetBlue beats AA in that market.  Let’s look at the next two airlines:

US Airways:  4.4%

Southwest:  2.8%

If we combined American Airlines, US Airways and Southwest in the NYC marketplace, we would have an airline with just 19.5% share of the market.  Still less than Delta and still considerably less than United.

And be mindful of the fact that SWA isn’t even considered a player in the NYC market as they’ve been unable to obtain gates or additional landing slots at the airports.

Care to guess who comes after Southwest?  That would be British Airways and Air Canada.  Yes, two foreign carriers are next in line with shares of 1.4% and 1.2% respectively.

On the tail end are Spirit and Virgin America with about 1% of the market each.

So when we talk about how there is an imbalance in the marketplace, let’s be mindful of the fact that the top two largest airlines (United and Delta) combine to own nearly 50% of one of the most competitive markets in the world.

And if you combined both AA and US Airways, they would still be at a significant disadvantage with just 16.7% of the NYC market.

I don’t disagree that the combination’s dominance in Washington D.C. should require divestiture of slots by those two airlines.

But the economic pricing power that the two SuperLegacy airlines have today are so great that they will gain more share over time rather than less with the current market conditions.  More of that market share means even more pricing power which means even greater increases in air fares.

But, hey, far be it for me to introduce rational thought in the US Airways / AA merger argument.

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AA should lose all slots at Washington Reagan National

September 13, 2013 on 11:37 am | In Airline Service, Airports, Mergers and Bankruptcy | 1 Comment

jetBlue CEO Dave Barger has decided that jetBlue *does* have a dog in the merger fight and has announced his (jetBlue’s) belief that American Airlines should lose all its slots at Washington Reagan National Airport if the merger goes through.

He means those slots held by AMR, not the new American Airlines.

He may even have a point but Mr. Barger would be well advised to pay close attention to what airports his own airlines dominates at before deciding he does have a dog in the fight.  That dog might bite him.

jetBlue holds a lot of slots at JFK airport and cooperates with American Airlines.

Maybe American Airlines (new) should have to discontinue its lucrative relationship with jetBlue due to dominance in the NYC, Boston and Washington areas.

Blatant land grabs are shameful no matter who makes them.  I realize that those slots are something all airlines covet.  If you cover them so badly, advocate a fair and equitable system for allocating them that remains dynamic over time.

 

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Antitrust Thoughts

September 6, 2013 on 1:29 pm | In Airline Service, Airports, Deregulation, Mergers and Bankruptcy | 2 Comments

Over the past week, I keep thinking about a few things related to the US Government’s stance on the US Airways / American Airlines merger and, specifically, their cited concerns about the merger.  Here they are in no particular order:

 

  • The DoJ was remarkably absent when the Wright Amendment undoing was being done.  Love Field Airport was essentially made a single airline airport . . . forever.
  • American Airlines now controls the following terminals at DFW International Airport:  Terminal A, Terminal B, Terminal C and parts of Terminal D.  The remaining terminals available to other airlines are . . . Terminal E
  • Delta . . . Atlanta . . . enough said.
  • No one seems to be trying to preserve flights to and from small cities in other parts of the country but anyone who wants to remove silly flights into Reagan National is deemed a danger.
  • Delta . . . Minneapolis . . . enough said.
  • Delta . . . Detroit . . . enough said.
  • United . . . Houston . . . stranglehold.
  • Southwest . . . Love Field and Midway airports

By the mandate cited by the DoJ, the antitrust department would appear to have a strong duty to investigate and correct these defects as soon as possible.

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Don’t ignore major players

August 30, 2013 on 1:00 am | In Mergers and Bankruptcy | No Comments

One thing that the Department of Justice attempted to ignore in its assessment of competition on routes in the US Airways / American Airlines merger was Southwest Airlines.  They also ignore other LCC carriers such as jetBlue but Southwest is specifically ignored in its complaint for its lawsuit.

Quick!  Who flies more Revenue Passenger Miles than anyone else in the domestic United States?

Southwest Airlines.

Southwest is a nationally dominant airline competing in all the large markets at this time and doing so quite well.  But the DoJ dismisses Southwest both as an airline as well as its influence on city-pair routes.  Let’s be clear:  The DoJ doesn’t just relegate SWA to a minor player.  It ignores SWA at all in its competitive analysis.

American Airlines is, for instance, presumed to have no competition in Dallas / Fort Worth.  For those of us in Dallas / Fort Worth, this comes as a complete shock.   I myself have frequently written about how Southwest is both price *and* time competitive on the Dallas-Fort Worth / Chicago run.  Notice that SWA is dominant at both Dallas Love Field and Chicago Midway airports?

Ignoring Southwest Airlines is kind of like ignoring that large 18-wheel truck in the lane next to you as you travel down a highway:  you can do it but you do so at your own risk.

Many speculate that the DoJ must have had strong reasons to define SWA and jetBlue out of the market for their analysis.  I strongly suspect that without doing so, they had no argument of strength to make against a merger.

And once you start carving up the rules so you can achieve the outcome you want, bad things happen.

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Having your cake and eating it too.

August 29, 2013 on 1:00 am | In Airline News, Mergers and Bankruptcy | No Comments

As predicted, the US Department of Justice is asking/demanding/pleading for more time to prepare its case against American Airlines and US Airways.  In fact, their arguments go against precedent and seem to indicate that they may well suddenly realize that their initial arguments in their complaint are pretty weak at best.

American Airlines and US Airways want an early November court date.  The indicate they are prepared and ready to go and want a speedy trial.  They well should be in light of all the due diligence and preparation being done for a merger.

They rightly recognize that a delay could result in serious impacts.  More and more delay is simply likely to impose an outcome on the two airlines that the US DoJ wants without a trail which is to stop the merger due to untenable costs that result from being in limbo and questioned in the markets.

The US DoJ’s arguments for a March 2014 trial date are . . . not good.  We need more time because this is a big merger and, well, we need more time to stop these evil airlines.

I actually think their memo language hurts them, I really do.  Emotional arguments don’t play well with judges.

I also think that their strategy was to kill the merger with the filing of a lawsuit.  When that didn’t work and, to the contrary, resulted in a big backlash, they went to the delay tactic knowing that it would impose financial burdens that couldn’t be tolerated indefinitely.  I think their strategy is transparent, in fact.

The DoJ, in its pleading, says:

“Plaintiffs’ proposed trial-ready date of March 3, 2014, with trial starting thereafter at the Court’s convenience, would leave four months for party and non-party document discovery and fact depositions, a month for expert reports and depositions, and then a month for pretrial motions and briefs.”

The airlines’ response is that the DoJ has already enjoyed free, unfettered access to such discovery, expert reports, etc in investigating the merger in the first place.  They aren’t wrong either.  When airlines decide to merge, they lift their skirts for all at the DoJ to see.

In light of the 4 previous mergers over the past 10 years, America West/US Air, Delta/Northwest, United/Continental, Southwest/Airtran, I would argue that not only should there be a vast, significant body of research but also a vast significant body of precedent to use in a court case.

Oh, wait.  There is.  But if you use it, the DoJ loses in the first day of a trial.

That must be why more time is needed.  Creating fiction always takes more time than fact.

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Will it fail?

August 24, 2013 on 1:00 am | In Airline News, Mergers and Bankruptcy | 1 Comment

Opinions about the merit of the Department of Justice lawsuit against US Airways and American Airlines and their merger are all over the road.  Some believe this is the end of the merger and most often those appear to be the opinions of people who operate outside the airline industry.

Others believe that US Airways and American Airlines have a real opportunity to win against this suit if they stay the course.

The concern in the greater world is that when the Department of Justice goes “all in” on a lawsuit like this, it typically kills a merger no matter how much companies involved protest they’ll fight this.  There is real evidence to support that.  One excellent example is the merger that was proposed between AT&T and T-Mobile.  Ironically, that merger got killed by the same Assistant Attorney General.

I do think that the intent on the part of the DoJ was to kill the merger without necessarily having to actually prove their case.  In other words, I think the DoJ believes that by filing the suit alone, they will stop the merger and achieve their goals.  It has been a successful strategy.

Furthermore, the DoJ is asking for a February trial date (or later) whereas American Airlines and US Airways are seeking an early November trial date.  This smells like the DoJ believes that if they delay this trial long enough, they’ll achieve their goals by default.

I do not think that a judge will look favorably on the government’s desire for a February trial date unless they literally cannot do it sooner by trial calendar.  I think this is underlined when the defendants in the suit signal they are ready to go to trial and do have a strategy.

There is a rule in trials that tends to say that he who is prepared best wins.  As a son of a lawyer, brother of a lawyer and with other lawyers in my family, I can say that I have noticed this to be very true.

So, I suspect that the DoJ is having a bad moment in as much as they are likely not prepared to go to trial.  I think they made a flawed analysis and I strongly suspect that not only were they not prepared for a trial, I also think that the broad commentary made upon their claims by a wide swath of subject matter experts has probably shown them that they really don’t have a strong case.

They don’t even have a strong case at Reagan National.  And if they lose this case, they may lose *all* the marbles rather than achieve some givebacks on that airport.  Why?  Because many other major airports are similarly dominated.  If the dominance that the merged airline would have at Reagan is an anti-trust problem, then the DoJ should have gone after several other airlines over their dominance at other airports.

Remember that many of the very people you would consult and have testify on this merger are the very ones who shamed the DoJ for their flawed analysis.  The DoJ is likely to find it very hard to find credible testimony in support of their action.

And both US Airways and American Airlines actually should be prepared to fight this case in November.  As a function of the due diligence they were already engaged on for the merger, they likely have all the data and facts necessary for an overprepared trial.  All they need to do is organize the data and schedule witnesses.

DoJ would probably like to spend a year doing discovery before being ready.  But they filed and publicly treated their lawsuit as “ready to go”.  It’s an ugly corner to be in.

Remember that part of the DoJ’s thoughts include the idea that each merger should be evaluated on its own criteria.  Perhaps that is what they even really think.  However, courts operate on precedent and absent a wholesale change in conditions, they tend to stick to precedent.  The Delta / Northwest, Southwest / Airtran and United / Continental mergers all provide current, relevant precedent.  Precedent is against the DoJ in this one and largely because of their previous approvals.

So, while some give this merger small chances now, I actually think that, in some ways, DoJ may have made this *more*profitable as a merger than it would have already been if they had just asked for some slots at Reagan National.

 

 

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Let’s talk about competition, airlines and taxes: Part 3

August 19, 2013 on 1:00 am | In Airports, Mergers and Bankruptcy | No Comments

This very same government, the Obama administration, along with this very same set of Congressmen who all profess great dismay at airlines and who offer that they are there to protect the consumer have ignored their role in what I would describe as a blatant shakedown.

It’s called the ever increasing taxes on airlines and travel.

Taxes have increased so much that they can represent from 15% to 20% of the cost of an airline flight to someplace in the United States.  Taxes are focused directly on the consumer and the consumer, the person who is actually flying, is being asked to bear the whole burden of the infrastructure necessary for commercial airlines.

The taxes are so great that they now *do* impact the decision to travel.  In fact, the taxes are often so egregious that they represent the highest portion of the increased cost to travel today.  They are grossly impacting the ability of airlines to win customers and stabilize their business.

Indeed, our current government’s inability to get its act together on sequestration has materially and substantially affected the airline industry this year in that we are seeing slight negative growth as a result.

The argument that a user should pay for an airport seems logical to many at first glance but consider the rather dramatic and powerful economic impact a major airport has on an area.  Consider what the D/FW area would be if DFW airport did not exist today.  Would ExxonMobil be headquartered here?  Would we be a major tech center?  Would bankers still want to bank here?  Would we have not one but 2 major airlines here?

We all benefit from these airports and airlines and the ability to travel.  It’s time we all share the burden of that.

So, if we truly are worried about the consumer and the financial impact on them. . .

. . . Could we please redistribute the taxes in place and share the burden more fully all around?

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