US Airways Shares Slip Despite Merger Chance, Strong Demand

Discussion in 'American Airlines' started by USA320Pilot, Mar 6, 2012.

  1. Phoenix

    Phoenix Veteran

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    True dat.
     
  2. PullUp

    PullUp Veteran

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    LCC has lower labor cost/ASM than Southwest. 0.6 cents lower, which, when you do the math leaves a lot of room for negotiation.
    Size matters in a network, and market share (even though that term is out of fashion). Being bigger is better - you have to compete with everyone else and the economies of scale will help float the boat.
    LCC, even though it is a smaller major (maybe), still has significant markets in major population areas. Would it be better to incorporate that or compete with it?
    I'm not privy to the specific numbers, and you seem more educated on the finer points of it all, but I do think that LCC brings some good things to any marriage.
    Cheers.
     
  3. AAviator

    AAviator Veteran

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    You totally missed the point. Do the math and see what your costs are moving seats through the sky. It doesn't matter what you make or cost at the end of the day, its what your business will support. The LCC network has the highest consolidated (to include regional flying) cost going. Period. LCC generates the lowest average fare. Period. Your network is possible and functions due to your low labor costs. Period. If economy of scale were possible at LCC, Parker would be full throttle with the growth, but your costs are too high, and your revenue generation abilities are sub par. PHL-SLC was axed even before it started...

    Best -comparative- data, although slightly dated:

    http://www.airlinefinancials.com/airline_affiliate__analysis.html

    Explain how your "lower than southwest" labor rate, yet highest industry CASM gives you room to negotiate? And negotiate what?
     
  4. WorldTraveler

    WorldTraveler Corn Field

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    well said. even if others don't want to accept that there are fundamental flaws in LCCs business model that they hope investors will just ignore when US makes offers for other airlines.
    PHL-SLC was axed because DL and US have a history of allowing little market skirmishes to escalate... and both realize it wasn't worth it. Given that US was the 'agressor" in this case, they backed off rather than start a blood bath.
    Of course, the kind of flying US was proposing (late night into another carrier's hub) makes even less sense at current fuel levels.
     
  5. BoeingBoy

    BoeingBoy Veteran

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    Of course, DL is still flying SLC-PHL. Guess that aggressor DL hasn't realized it isn't worth it...

    Jim
     
  6. WorldTraveler

    WorldTraveler Corn Field

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    except that DL has a western hub at SLC as does US at PHX. Since DL also has nonstops from SLC to many of the major east coast cities and also carries the majority of traffic from SLC to the east coast even in markets where there are no nonstops, US' attempt to add flights from PHL-SLC at on off-peak hour would have done nothing except depress yields to/from SLC, which is why DL was willing to fight to keep US from allowing the flight to work.
    DL has on its own reduced the number of east coast -SLC flights anyway because the MSP hub duplicates many of the same connections that could flow over SLC, MSP is a more centralized hub (less longhaul domestic flying), and MSP has a larger local market which makes it possible to better balance local and flow traffic. DL has the benefit of multiple hubs because of the merger and they aren't about ready to lose the advantages they gained to any other carrier.
    UA is in the same position although they continue to work their own network balancing exercise.
    Nobody doubts that any carrier should be able to try to make any route work... but the industry is mature and there is very good demand data on how much traffic exists on any given market and what price points are necessary to make new flights work. When it is obvious that a route will come at the expense of good yields for one carrier for a smaller benefit at another carrier, it shouldn't be a surprise when carriers move to protect their markets.
     
  7. BoeingBoy

    BoeingBoy Veteran

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    So you're saying that DL can fly to anywhere it wants from it's western hub like, say, PHL) but US can't do the same from it's eastern hub without being labeled "the aggressor"???

    Jim
     
  8. WorldTraveler

    WorldTraveler Corn Field

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    didn't say that at all... I am saying that DL carries the majority of the traffic to/from SLC to/from the east coast. When you throw in an extra flight that was going to be added solely as a direct operating cost flight (maybe collecting a few more pennies worth of revenue at low costs), then it is apparent that pricing the seats on that flight for profitability is not the primary factor.
    Remember that large portions of US' hub at LAS were based on DOC flying in the middle of the night. If it didn't make sense for US to do it there, why should DL allow them to do the same thing at SLC?
    If US wants to commit real resources to a market and price the flight for its own profitability, then they would compete very well. But since Parker's ongoing mantra is that US obtains lower revenues than other carriers (validated by all kinds of data) and has costs that are higher than other carriers, then why should DL allow US to expand any further on the same basis that it is using now which does nothing good for the industry?
    It is noteworthy that the answer to why DL will aggressively fight to keep US from expanding in key DL markets is the same reason why DL will make sure that US does not have the chance to get its paws on AA.
     
  9. 767one

    767one Veteran

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  10. 767one

    767one Veteran

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    Amen brother Ben!
     
  11. BoeingBoy

    BoeingBoy Veteran

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    Well, actually I quoted your words...

    And US carries the majority of traffic to/from PHL. Still seems like you're saying that DL can do whatever it wants but other carriers can't. DL serves DFW, yet AA carries the majority of traffic there. DL serves DEN, but UA carries most of the traffic there. DL serves ORD, but AA/UA carry the majority of traffic there.

    But let little old US serve SLC from it's hub in PHL and it's unfair. Is DL that afraid of US??? :lol:

    Jim
     
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  12. 767one

    767one Veteran

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    Parker does not want any growth because it would cause problems with his next deal.
     
  13. USA320Pilot

    USA320Pilot Veteran

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    APA News Digest: March, 16, 2012

    APA Attends JP Morgan Aviation, Transportation & Defense Conference

    This week JP Morgan's airline analysts, Jamie Baker and Mark Streeter, hosted their invitation-only Aviation, Transportation & Defense Conference in New York. APA President Captain Dave Bates and APA Industry Analysis Ad Hoc Committee Chairman First Officer Dennis Tajer attended the conference, along with many industry investors and airline analysts. The airline portion of the conference consisted of presentations by Delta's President Ed Bastian, United's CEO Jeff Smisek, US Airways' President Scott Kirby, Southwest's CFO Laura Wright, JetBlue's CEO Dave Barger and Alaska's President Brad Tilden.

    Each executive briefed the attendees on their past results, both financial and operational, as well as providing forward guidance for each of their respective networks and product. While each airline executive did not provide prepared comments regarding AMR's bankruptcy and merger speculation, during the question-and-answer portion, virtually each airline executive was asked about the subjects.

    To listen to each company's presentation, the question-and-answer session and to view the accompanying presentation slides, click on the following links: Delta, United, US Airways, Southwest, JetBlue and Alaska.

    AA Answers the National Mediation Board's request for Comments on APA's Offer to Seek Binding Interest Arbitration

    National Mediation Board (NMB) Director of Mediation Services Lawrence Gibbons sent a letter to AMR Senior Vice President-Human Resources Jeff Brundage on March 12 asking management to comment on APA's request for binding interest arbitration. As previously reported, APA President Captain Dave Bates sent a letter on March 8 to the three members of the NMB requesting a proffer of binding interest arbitration in the ongoing contract negotiations with AMR management. Click here to read both letters.

    Today, in a letter from AMR Senior Vice President Jeff Brundage to the NMB, Mr. Brundage stated, "American spent more than four years seeking consensual agreements with it Unions, without success." He continued: "To the extent that the unions argue that an independent third party should have a role in the process, the Bankruptcy Code already provides for that by having the Court make such determination." Click here to read the letter.

    In response, APA President Captain Dave Bates said, "I am disappointed that AMR has rejected our offer to help resolve American's structural problems through a mutually beneficial process. Instead, management is resorting to the sort of hardball tactics employed at Eastern Airlines and elsewhere that will likely result in the further deterioration to the corporate culture at American Airlines."

    Click here to read a related article from The Dallas Morning News.

    Several Communications Projects in the Works

    APA is hard at work on several projects designed to inform the membership about various issues related to AMR's restructuring and our negotiations with management, including:

    A video featuring APA's legal team discussing the Chapter 11 process and the union's role in it.

    A Pension Committee-produced series of questions-and-answers regarding the A Plan.

    A communiqué regarding Supplement B.

    The second in a series of "Special Report to the Membership" mailers featuring several informative articles.

    Analyst on A-Plan Lump Sum and Termination

    On the recent activity regarding AMR management's move to entertain a freeze of AA's non-pilot defined benefit plans, Wolfe Trahan's airline analyst, Hunter Keay, provided the following pilot defined benefit (DB) plan commentary to investors:

    "We still expect the pilot DB plan to be terminated because of the lump sum payout feature, as 5,000* plus pilots are supposedly eligible for retirement next year -- not only would AMR likely be unable to operate its schedule in a hyper-retirement scenario but the company would face crippling one-time cash costs. Because of that, even the most skeptical BK judge would likely rule in favor of termination, in our opinion (note there are significant similarities to DAL's BK here - DAL successfully terminated its pilot DB plan because of a slew of retirements and a lump sum payout feature but kept frozen DB plans for non-pilots, which did not have lump sum payouts... the same situation AMR now faces... and DAL's cash pension expense this year should be ~$700M - but DAL can better afford it, in our opinion.)"

    "AMR implied a willingness to be flexible on the pilot DB plan, but the company said the lump sum feature had to be addressed. We believe ERISA law prohibits changes to DB plans, but bankruptcy law could trump that if both parties are willing to negotiate a solution, so the legal complexity to maintain vested pension benefits for the pilots in a non-termination scenario could be highly complex."

    *The "5,000 plus" pilots is based on the number of AA pilots that will be age 50 and older next year.

    JP Morgan Analyzes AMR as "Stand-Alone" & Merger Scenarios

    Last week JP Morgan's airline analysts Jamie Baker and Mark Streeter provided a comprehensive note to investors on the speculation of a merger AMR and US Airways (LCC) or Delta (DAL). The following are excerpts from their note:

    "We are underwhelmed with AMR's stand-alone restructuring plan, insofar as it fails to adequately address the decade-long marginalization of its domestic network, in our view. For this reason, we now ascribe a higher probability that AMR ultimately engages in industry consolidation – and whether or not this happens in court or post exit is likely dependent on whether the creditors' committee (notably labor and the PBGC) can be won over by potential suitors. As an update to our early January piece, we believe the merits and regulatory challenges of an LCC-AMR combination warrant further consideration, whereas DAL-AMR continues to strike us as a high-risk, lower probability outcome."

    "We're underwhelmed with aspects of AMR's restructuring plan. The plan falls short, in our opinion, is in addressing the decade-long marginalization of its domestic market. AMR's proposed $1 billion of incremental revenue, comprising merely increased code-sharing and larger RJs, strikes us as ambitious, and would not solve what we see as its domestic deficiencies relative to superior network alternatives available at Delta and United."

    "From a network and regulatory perspective, LCC-AMR makes sense to us. Based on our analysis, AMR has fallen to 4th place in the largest non-hub Eastern and Western markets, though maintains a #2 rank in the Midwest. An LCC-AMR combination would likely rank #2 in the East and West, and #1 in Midwest."
     
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  14. AAviator

    AAviator Veteran

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    :lol: :lol: The same JP Morgan that has been saying this all along...

    Slow news day? Your source is 3 days old. Is that all you can come up with? :lol: :lol:
     
  15. AAviator

    AAviator Veteran

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    True dat :p
     

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