Doug Parker's Letter to employees

[ChockJockey]

Thankfully, there are people who get it and don't attempt to see demons behind every doorknob just because they don't like the sounds they hear.
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Yes, the airline industry is highly competitive and those who "have" are going to do what they can to ensure that those who "don't have" don't get more.
DL and US execs both know that DL has the upper hand if AA is unable to restructure on its own which is why Parker is trying to jump start the process - even if his efforts really don't give him an upper hand when the real bidding process begins.
DL has a finished merger that is paying dividends, has financials far better than US' - including a marketcap that is even now 5X higher than US' current inflated rate based on all the hope that a merger will finally make US into something, and DL really has no more overlap with the key assets that AA has and DL wants - LHR, Latin America, MIA/DFW - than US has.
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And we still have other parties that have an interest in AA's outcome and could compete with US, including BA and even UA - which would love to have the MIA hub... although they couldn't really take much else.
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So, yes, there will be those who don't want to hear the logic that stomps on their hopes that US will finally be saved from itself or that the creditors and AA mgmt will have a difference of opinion with AA labor - surprise, surprise - even if Parker has wooed them - but that is exactly what will happen.
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And those that "have" today will make sure that they are able to continue to build on what they have and are managing well while not allowing anyone else to be admitted to that club - and they will find support from those who control AA's outcome - who are also interested in reducing risk and increasing their own wealth.
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This is big business, not hopscotch on the elementary school playground.
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Grasping that reality has everything to do with understanding the way business works - and nothing to do with loyalty - or not - to any company.

That's all very interesting WT, but I have just one question for you: why do you separate your paragraphs with periods?

 

[Airlinelifer]

Delta and Northworst had every intention of a merger BEFORE they BOTH filed for bankruptcy.

Hey Frank, Whats with all the hate? "Northworst"??? I think your lav truck just sprung a leak.....

 

[WorldTraveler]

WT: Why would DL want Latin America, when DL has successfully grown Lat Am organically from ATL...so successfully in fact, that UA retreated from MIA soon afterwards? Furthermore, why would DL need LHR after successfully securing the one missing crown jewel in DL's network; JFK-LHR (from UA)? I just don't see what strategic basis DL would have for growing LHR when their key alliance partner is AF. DL flies to LON from all of their hubs, sans SLC, correct?

Lastly, up until the UA-CO merger, DL/NW became the world's largest airline. I just cannot see the DOJ...especially under the current administration...approving any transaction that would give the goliath that is DL, any additional market power.

No US airline has more than 25% market share - well below what the DOJ has established as the upper limit in any other industry. The airline industry has long been highly fragmented and continues to be... there is no reason to think that DL or UA could grow to 30% of overall market share w/o creating antitrust problems...
The DOJs real concern has been w/ specific markets, esp. those where there is limited access. Thus, the focus will be on what happens in NYC and WAS where slot controlled airports exist.
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DL still is #3 in Latin America now that UA/CO have merged. DL's growth came AFTER and because UA pulled down MIA-Latin America... but ATL is not a substitute for MIA to Latin America - and AA is still 3X larger than DL in Latin America.
DL is also #3 at LHR behind AA and UA now. DL has managed to carry similar amounts of LOCAL revenue from JFK and BOS as AA does ON ITS OWN METAL - but AA and UA are far larger in other markets and in the US as a whole to/from LHR. DL has 3 flights per day at JFK which is their max number of flights from a gateway. AA and UA have multiple gateways with 4 plus flights per day - that is what allows them to be much larger from throughout the US to LHR.

DL's LHR presence came from AF and KL, who own the slots DL is using for almost all of its LHR flights. DL paid for the rights to fly JFK-London from UA - but it was only to LGW until Open Skies was signed.
DL shares all of its LHR revenues with AF/KL.

I believe it is far more likely that DL, UA, and WN will grow to become the big 3 airlines and AA and US will be absorbed into those other 3 airlines than that AA/US will occur.

 

[Phoenix]

That's all very interesting WT, but I have just one question for you: why do you separate your paragraphs with periods?

I for one am glad he does. I just read the periods since I don't have time for all the rest, besides it just keeps repeating the same Delta . Delta . Delta . Delta . Delta . Delta . and so forth.

 

[WorldTraveler]

then you probably sadly will be surprised when the AA/US lovefest which you have predicted not only doesn't occur but the industry instead will eventually consolidate:

I believe it is far more likely that DL, UA, and WN will grow to become the big 3 airlines and AA and US will be absorbed into those other 3 airlines than that AA/US will occur.

you'll recall that Parker has said he really wouldn't mind if US were acquired - but he very much fears that US will be marginalized, stuck between much larger network carriers and much more nimble (lower cost) low fare carriers and in the process of being marginalized, US' value will diminish dramatically.
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UA obviously is in the midst of their own merger while DL has the means to move forward w/ the next round of consolidation as a result of the successful NW merger.
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WN also is in the midst of their own merger but they like UA and DL obviously want to continue to grow, esp. in NYC.
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What is happening with the 717 fleet for WN is very important - because there will come a time when consolidation requires rationalization of assets as larger and larger airlines can't find the "exact" fit they need - while other airlines need "just a little more of this" in order to round out their networks.
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Thus, I could see that WN will eventually go after B6 in order to strengthen WN's position in the NE, perhaps DL goes after AS even after taking large portions of AA, and UA takes most of US, excluding whatever of DCA the DOJ says they can't have - and I think those guidelines won't be the same as what they were 10 years ago.
UA now has 70% of the flights at EWR while DL has just under 50% of LGA and about 1/3 of JFK's US carrier slots (20-25% of JFK slots are held by foreign carriers anyway).
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The industry very likely will consolidate around strength - which is part of why AA/US is unlikely to happen - or if it does happen, it will come unraveled and the mess redistributed at some point in the future.

 

[USFlyer]

Yes, it is absolutely true that DL fared better as a standalone and it certainly fared better than US.

DL has not been a "standalone" entity since it merged with NW shortly after emerging from bankruptcy. Therefore, all history to date proves is the combined NW+DL has fared quite well. There aren't facts to support any other conclusion.

I note you agree with this conclusion by quoting one of your other posts:

DL has a finished merger that is paying dividends

 

[Frank Szabo]

Hey Frank, Whats with all the hate? "Northworst"??? I think your lav truck just sprung a leak.....

"Hate"? - youre funny.

Are you one of the HR people posting here trying to elicit a response?

 

[WorldTraveler]

DL has not been a "standalone" entity since it merged with NW shortly after emerging from bankruptcy. Therefore, all history to date proves is the combined NW+DL has fared quite well. There aren't facts to support any other conclusion.

DL emerged from BK and was a standalone company from May 2007 until the NW merger closed late in 2008.
Once again, by the time the DL-NW, DL showed an operating profit minus merger/restructuring charges while AA, UA, and UA posted operating losses. DL did in fact show better results post BK and did it while still a standalone company.
Since the merger, DL has accelerated its earning performance. Over the past year since its own merger, UA/CO has posted very similar financial performance to DL.
I am not arguing that there isn't a merger premium that doesn't come from earnings... I am saying that the DL and UA mergers were structurally different from what AA/US could be - and it is still doubtful that AA/US could climb into the same league as DL or UA because AA/US still will have a very small Asia/Pacific presence, will be very weak in continental Europe, AA's historic strength in LHR has been neutralized by the UA/CO merger now that UA/CO is about the same size as AA on its own metal while DL is doing very well in LHR in the limited markets in which it has enough slots, AA's advantage in Latin America is largely insulated by limited access markets which will move to Open Skies in the next few years, and domestically, AA/US will not be the #1 carrier in any of the top business markets - NYC, CHI, or LAX - and the gap between AA and the #1 carrier in each of those markets - all for now UA - is growing. DL is narrowing its gap w/ UA in NYC and might grow to the same size as a result of the slot deal, Asia Pacific is largely split between DL and UA with DL being dominant in Japan and S. Korea while UA is dominant in China/HKG - among the largest markets.
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And then you have to consider game theory - what happens if AA/US does merge - still not creating a large enough carrier on the east coast to be dominant in anything outside of their own hubs - while DL and UA then make their own moves which likely will include a DL acquisition of AS which pushes AA/US even further down in the west or DL or UA expands their own MIA-Latin America service. And you still have US to contend w/ which is focusing its growth on Texas - DAL and HOU - markets that will affect AA and to a less extent UA (even though they act like it would be the end of the world) far more than they are growing in DL strength markets.
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There is a first mover advantage in business and DL's completed merger with NW as the first of the megacarrier mergers gives DL a larger advantage in making the next move in consolidation. UA moved next and is largely executing its merger well - although the real question is what their costs are going to look like after they give pay raises to buy labor peace. WN's merger will work out and they will be stronger in time. All of those mergers will be finished long before AA/US even get the paperwork signed, let alone begin to start working as one carrier.
Thus, the prospects that AA/US will be able to compete with 3 megacarriers - one nationwide and 2 global - are not real great, esp. since those other 3 all have stronger financials and have network strengths that are more valuable than even what AA/US can come up with.
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I still think the best chance is for AA to bring its costs as low as it can in order to compete as effectively as it can... but a merger with US will add to costs and delay the ability to compete at a time when AA is already behind the 8 ball compared to other carriers. Throw in that there is labor discord at AA and US and the chances of a smooth merger are slim. Finally, add in that other carriers can satisfy AA creditors NOW and demonstrate stronger returns and it is doubtful that US could really win a merger proposal for AA. Remember, US lost out on merger proposals in the past - and they weren't even competitive with other carriers - and that will certainly be the case with AA.
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It is also possible that AS or B6 could buy parts of AA in partnership with DL and investment bankers in a way that doesn't create the duplication that US would have to resolve - and AS, B6, and DL all have stronger financials and employee relations.
UA probably could buy US with the exception of probably about half of US' DCA slots which could easily be divided between several other carriers.
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I think it is more likely that not that eventually that the US airline industry will consolidate around two global megacarriers, one nationwide megacarrier, and one or two other large nationwide carriers.

 

[TWU informer]

All this speculation by the management sympathizers pretends as if this is the final cost cutting experience by all carriers.
As if this is the final chance for any survival. And anything short of their manipulation ideas, we are all doomed.

Nothing is further from the truth.

There is no limit to the number of trips through Bankruptcy to reorganize or rape the industry employees.

If AA cuts it cost to compete (which means below cost of others), then the other carrier just matches the cost reductions via consensual concessions or another trip to BK.

There is no winning the game via cutting cost because that is what has been taking place since deregulation was inacted.

There is no end to this madness as long as the laws remain in place or labor refuses to take action that will forever change the landscape.

To pretend that this is the last and best chance of cost cutting by AA or any other carrier is rediculous thinking.

I have a what if for all you genius prediction gurus.
What if Labor has enough of this crap and an industry wide restriction of service happens?
Then which carrier/management/investor has the upper hand?

 

[WorldTraveler]

If labor all walked out together, then perhaps your scenario would happen... but you and I both know that is pretty unlikely to happen.
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the reason why consolidation is moving forward now is because the industry has fragmented into the "haves" vs. the "have nots" - that did not exist before. AA, CO, DL, NW, UA, US were all basically in the same boat - some were larger but none had a full network - and profitability or lack thereof was not really different between any of the network carriers.
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Both of those things are changing... there are now airlines that have a full network or come close to it w/ a few relatively small additions while others will never be able to have comparable networks to their peers. Also, there is a growing distinction in profitability between carriers in the network/legacy carrier segment.... and again some carriers will never reach the same levels as others.
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That is precisely why US is so frantic to not be shut out - because its size and its ability to be profitable will never be comparable to other network carriers - and yet those same network carriers that have eclipsed US will use that power to ensure they retain their edge and add whatever they need to their own networks and profitability.
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The airline industry in the US is reaching an end state of consolidation 35 years after it began... the sheer fact that each phase of consolidation since 1978 has happened faster than the one before it provides even more evidence of a coming end point to the process of consolidation.

 

[Hopeful]

Looks like the pilots got some promise of a raise.

http://www.bizjournals.com/stlouis/morning_call/2012/04/us-airways-plan-to-merge-with-amr-is-a.html?ana=yfcpc

5.5 raise for pilots tna 3% a year for 5 years? Nice...

Do the LCC pilots get the same raise?
Are the AA pilots still getting their $1,000,000.00+ retirement checks?

Gee, I wonder what Santa Claus if giving to the TWU members!
I guess we are all getting a 20.5% raise over five years!

Way to go Dougie baby!

 

[jimntx]

Has anyone else gotten the feeling that 777 / 767 / 757 Love is actually our dear know-nothing airline expert 737823? The posts read very similar. Put 777 / 767 / 757 Love on ignore, it has worked beautifully for 737823.

 

[777 / 767 / 757 Love]

So what to you fear will go away? You will still see the AA on the tail, and I would expect the the superior FT program to stay intact.

No I won't see any of that. I won't see the same AAdvantage program nor will I see the same service. US service SUCKS compared to AA. There is a culture at American airlines that is driven by the employees and history at that airline. Im telling you, AA TRULY is a better service airline than any other US based airline. Continental used to be great, but it has changed.....United killed that. US Air has no idea how to assemble a descent first class or many other amenities that makes American special for the premium passenger. For the every day passenger who flies 1-2 times a year? They don't care about ANYTHING but PRICE AND SCHEDULE. PERIOD. If you just fight for those customers, Southwest and JetBlue will kick you ass all day long because they have lower costs because they run a business that is smaller, more streamlined because they are simply low-cost domestic flyers.

Cheers,
777 / 767 / 757

 

[777 / 767 / 757 Love]

777/767/757,

The problem with AA's term sheets,they are so bad,its a much better deal.To merge or get a buyout from anyone. Jack in the Box will have better benefits and holidays than the new Horton AA. So why would anyone support Horton here labor wise?

Well, I have only seen the pilots proposed contract. It sucks.......when compared to where everyone was at. There in lies the key: bad when there are PREVIOUS expectations. I got friends on Wall Street making 1/4 of what they were making, and you would LITERALLY give your left arm to have their compensation (I know I would), yet they had more, so expect more, so they are depressed. Its all relative. I know PLENTY of VERY EDUCATED AND HARD WORKING people with lots of experience who would KILL to have the contracts offered to the pilots, to have the ability to live in Philly or St. Louis, or SFO, but work in NYC, Chi-Town or LA. I know professionals who would kill to have more than 8 days off a month, to have an office where their boss is not. It is all relative. EVERYTHING IS RELATIVE. Tough to swallow, I know.......but jumping to another management team leaves you in the same struggling industry. Reacting out of anger and believing 1+1=3 because someone makes some promises won't make things better. Its just foolish.

I will always believe "believable facts" before I believe "unbelievable facts".

Grass always seems greener.......

Cheers,
777 / 767 / 757

 

[777 / 767 / 757 Love]

I have a what if for all you genius prediction gurus.
What if Labor has enough of this crap and an industry wide restriction of service happens?
Then which carrier/management/investor has the upper hand?

Won't happen, not if an employee has a family to feed. No one, and I mean NO ONE, will risk not being able to feed their family to make a statement. Less money is a WHOLE LOT DIFFERENT then no money. Not to mention the fact that EVERYONE is can be replaced. If the Unions of all airlines try to hault the industry, the public will turn on them, and the unions will be broken, and there are plenty of people to come in and take the jobs, which will lead to SCABS. It would be UGLY for EVERYONE, including management.

Cheers,
777 / 767 / 757