Airline stocks down sharply - DOJ reportedly to block AMR/LCC

[AANOTOK]

When all else fails change the subject. What a strong intellectual argument!

...yet it's probably the truth! B)

 

[swamt]

I feel the merger is 50/50. However, if the DOJ for some reason allow the merger to go thru it will be with huge concessions. More than any previous airline merger. The question will be, is it worth the cost to still merge? All depends on how big does AA want to be to compete with DL and UAL. These future nego's will take some time to hammer thru, unless of course, the judge sides with the DOJ. But I think the judge will send the merger forward rather than seeing the possibility of one or two airlines faltering. If allowed to move forward, the questions will be, with what concessions?

 

[jimntx]

swamt, as FWAAA suggested, go read the complaint. There are no concessions that LCC or AMR could make that would rectify the wrong actions and statements of the LCC/AMR executives--other than none of these executives (esp. Doug Parker) would be part of the merged company (my opinion, not FWAAA's). And, we all know that is not an option as long as Mr. Parker has breath in his body.

The DOJ objections have nothing to do with monopolies, control of airports, etc.--the things that divestitures can fix.

The merger's chances are worse than 50/50. I would buy a Powerball ticket instead, if I were you. Much better odds.

 

[FWAAA]

I'd have to disagree, the DOJ's case has more holes in it than a block of swiss cheese. They are going to have to provide a lot more than e-mails and quotes from the CEO's (who were at the time trying to raise support and capital), to prevent the merger.

The emails and the CEO quotes aren't the proof that the merger probably violates Section 7 of the Clayton Act; they're the colorful corroborating evidence to the proof, and the proof is in all of that market share data that shows all the different city pairs where the merger will reduce the number of viable competitiors. Those emails and memos and CEO quotes merely show that screwing the customers (by reducing capacity and raising prices) was Parker's goal - and the government has it in his own words. So when he takes the stand and claims that the merger won't harm the flying public, the government can cross-examine him with his own contradictory statements. Oops.

All mergers reduce competition, especially when the result of this one would be that the remaining four large airlines (AA, UA, DL and WN) would control 90% of the domestic air travel market (the one that no amount of foreign compeition can impact - like it can impact the market for international travel).

If the DOJ was really concerned about protecting John Q public, why are they trying to support a duoploly? Why haven't they said anything about the record number of recent health care provider mergers that have caused up to 300% increases in costs to consumers?

I don't know enough or care about health care provider mergers - this is the one where the government has sued and you and other antitrust expert pilots, mechanics, fleet service, FAs and agents have claimed the government's case is weak.

If the merger is blocked, the domestic market is not a duopoly. Isn't WN the largest carrier of domestic passengers? And UA, DL, AA and US control most of the remainder of the market? Followed by B6 and VX?

If this merger happens, then AA, UA, DL and WN would control 90% of the domestic market - that's the illegal result that the DOJ correctly claims is prohibited by Section 7 of the Clayton Act. And no amount of song and dance by Parker, Kirby, Horton or anyone else can refute. Throw in all the other juicy supporting evidence like the emails and memos and speeches, and it's game over.

The best thing in my opinion for both sides is the merger. Looking at from our side, USAPA is incapable of getting a contract, because they will neither accept the Nic or move off DOH. Without the merger we will be the lowest paid pilots in the industry for a long time. Nothing like having to have a side job so you can afford to be a major airline pilot.

If I were a commercial airline pilot, I'd be livid at the blocking of this merger, as the government is trying to prevent your employer from reducing capacity, raising prices and presumably sharing some of those spoils with you and your colleagues who have long been poorly paid compared to the wages of pilots from long ago (before the Sept 11 industry meltdown and before the rise of low-cost airlines like WN, FL, B6, VX and the rest. PeoplExpress and Freddie Laker tried to disrupt your way of life earlier, but their plans never really came to fruitition. WN now has about twice as many jet airliners as US Airways, has comparable revenues and flies many more passengers each year. Their pilots make substantially more than you do.

If I were a pilot, I'd be pissed. But this ain't about you - it's about the other 315 million Americans who "deserve" cut-throat competition resulting in cheap fares.

The DOJ case is weak, did they include Southwest in their competition analysis?

Yes, if you read the complaint, WN was included in the analysis.

 

[cltrat]

ok you claim the pilots ,mx, fleet service etc are not merger experts and I will concede that
so what qualifications do You have that makes you one?

 

[Beancounter]

The emails and the CEO quotes aren't the proof that the merger probably violates Section 7 of the Clayton Act; they're the colorful corroborating evidence to the proof, and the proof is in all of that market share data that shows all the different city pairs where the merger will reduce the number of viable competitiors. Those emails and memos and CEO quotes merely show that screwing the customers (by reducing capacity and raising prices) was Parker's goal - and the government has it in his own words. So when he takes the stand and claims that the merger won't harm the flying public, the government can cross-examine him with his own contradictory statements. Oops.

All mergers reduce competition, especially when the result of this one would be that the remaining four large airlines (AA, UA, DL and WN) would control 90% of the domestic air travel market (the one that no amount of foreign compeition can impact - like it can impact the market for international travel).



I don't know enough or care about health care provider mergers - this is the one where the government has sued and you and other antitrust expert pilots, mechanics, fleet service, FAs and agents have claimed the government's case is weak.

If the merger is blocked, the domestic market is not a duopoly. Isn't WN the largest carrier of domestic passengers? And UA, DL, AA and US control most of the remainder of the market? Followed by B6 and VX?

If this merger happens, then AA, UA, DL and WN would control 90% of the domestic market - that's the illegal result that the DOJ correctly claims is prohibited by Section 7 of the Clayton Act. And no amount of song and dance by Parker, Kirby, Horton or anyone else can refute. Throw in all the other juicy supporting evidence like the emails and memos and speeches, and it's game over.



If I were a commercial airline pilot, I'd be livid at the blocking of this merger, as the government is trying to prevent your employer from reducing capacity, raising prices and presumably sharing some of those spoils with you and your colleagues who have long been poorly paid compared to the wages of pilots from long ago (before the Sept 11 industry meltdown and before the rise of low-cost airlines like WN, FL, B6, VX and the rest. PeoplExpress and Freddie Laker tried to disrupt your way of life earlier, but their plans never really came to fruitition. WN now has about twice as many jet airliners as US Airways, has comparable revenues and flies many more passengers each year. Their pilots make substantially more than you do.

If I were a pilot, I'd be pissed. But this ain't about you - it's about the other 315 million Americans who "deserve" cut-throat competition resulting in cheap fares.



Yes, if you read the complaint, WN was included in the analysis.

Well, since I'm apparently not an expert in either field (according to you), it's hard for me to tell what's more atrocious, your comprehension of legal matters or business. Oh, by the way, blocking the merger won't lead to more competition.

Initially I was livid and felt the merger was done. Then I did some research and talked to some acquaintances. It appears all you did was read the DOJ's filing then made your ASSumptions.

I don't know what your deal is, but it's obvious that just like I have personal reasons for wanting it to proceed, you have reasons for wanting it to fail.

Bean

 

[traderjake]

If the merger is blocked, the domestic market is not a duopoly.

Yes it is, three big airlines are better for the consumer than two.

The DOJ case is weak, if the creditors take it to trial it will probable be approved.

 

[WorldTraveler]

In his court filing and subsequent comments , Baer effectively conceded that the government had made a mistake in approving the earlier mergers, which had made it easier for the legacy carriers to carve up the market and collude on reducing capacity and raising prices. And while it may seem unfair that American and US Airways be punished for being the last two legacy carriers to merge, Baer is quick to point out that there has long been a “last mover disadvantage” in merger law, where the focus is on fairness to consumers, not producers.

http://www.washingto...airways-merger/

 

[Beancounter]

ok you claim the pilots ,mx, fleet service etc are not merger experts and I will concede that
so what qualifications do You have that makes you one?

If i had to guess, i'd say mid level management. How should i know? I used to be on the dark side of the airlines i sat 2 people to the left of the VP in the morning meetings.

Bean

 

[roabilly]

ok you claim the pilots ,mx, fleet service etc are not merger experts and I will concede that
so what qualifications do You have that makes you one?

Ohhh... this one's easy... because they have a PC and a mouse?

 

[WorldTraveler]

If i had to guess, i'd say mid level management. How should i know? I used to be on the dark side of the airlines i sat 2 people to the left of the VP in the morning meetings.

Bean

And this also highlights why no one should underestimate who participates on this forum or try to denigrate them just because you don't agree with their positions.
There are people who participate on this forum who are very knowledgeable, articulate, and persuasive.

But it is also true that many people who participate in special interest forums like this one have some sort of connection to the industry and thus a bias.

Specific to the topic, people all the way up to the CEOs and investors have a lot of knowledge about what is going on but that doesn't change their bias any less than a frontline worker who has much less information.

The simple fact is that the AA/US merger faces a higher standard just because it is coming later - a last mover disadvantage - and AA/US does not offer the level of end-on-end benefits that other mergers have provided, instead concentrating more of the new airline on the east coast. AA/US do have overlapping hubs in the NE (JFK and PHL) and in the southwest (DFW/LAX/PHX) and duplicate some traffic flows even where there are not duplicate hubs; just because DFW and CLT are not in the same geographic region doesn't mean that the combined airline won't have a very significantly larger presence from the Washington DC region to Texas, for instance.

And it also doesn't change that there were incriminating comments found in US and AA internal communications - as well as some forwarded outside of those two companies - that are now part of the DOJ's case against AA/US.

 

[robbedagain]

a very interesting read on an article in www.justplanenews.com that some are comparing the corona and busch beer companies and the ua/co merger to the us/aa and its possible that a similar deal might be struck for ex ua/co had to keep cle with vast majority of flights for 2 yrs and they leased 36 slots to swa

 

[WorldTraveler]

"Ultimately, InBev made major concessions, selling assets worth almost a quarter of the acquisition value. "

if AA-US is willing to give up 20% of US, then perhaps the deal could pass muster:

make no mistake, though, that the price is very high... is it worth it?

 

[robbedagain]

that 20% is that strictly on the us side or is it a combo of both aa and us? secondly they could say keep a hub or two for say 2 yrs similar to the ua deal... on the other hand may be lease some slots at dca similar to the ua at ewr just my guess but i would imagine they will get creative to get the merger thru but at what cost

 

[WorldTraveler]

my gut says it is worth negotiating in order to get the deal done but 20% of the combined AA-US holdings at DCA is the entire AA slot portfolio.

And, there is no indication as to how much AA-US would have to give up or how much service to maintain. That example only happened in the merger noted above.

It is also alot harder to deal with the pricing issue but it might involve agreeing not to raise fee revenues above a certain level or for AA-US to initiate any fare actions in certain locations.... pricing controls would be very hard to come up without the gov't overstepping its bounds which is why it is easier to come up with divestitures. AA-US are better off arguing for pricing controls and maintaining service levels for a certain period of time than to permanently lose assets.

All of that reduces the economic payback from the merger at the same time that labor has already been promised benefits from supporting the merger.... and a significant divestiture of slots in an airport like DCA could dramatically change the economics of that airport as a hub esp. if B6 gets a lot of the slots.
I still think US' best bet is to let go of small city slots and let other network carriers operate those flights... it reduces the slot holding faster and poses little threat to US compared to if those slots were handed over to LFCs. The hub will just work differently depending on how much flow traffic those small cities contribute.