Network implications of an AA and US merger

[Crash Pad DCA]

Full Article: here

Leading airline across North America


A look at the leading airlines at all North American airports (in terms of weekly departing seat capacity) reveals that American Airlines ranks fourth, just ahead of US Airways. Combing the networks of these two carriers would make ‘American Airways’ the leading airline across North America, leaving the US market with three mega-major legacy carriers (American, Delta and United) and one mega-LCC; Southwest. Southwest (which would then be ranked fourth) would then be five times bigger (in terms of weekly seats from North American airports) than the next biggest US carrier, JetBlue.

Six major hubs, but only Phoenix in the west

Looking at the top 12 airports (by current weekly seat capacity) shows that the merged airline’s centre of network gravity would be very much more towards the east coast than the west. Of the top 12 busiest airports for the combined carrier, only two (Phoenix and Los Angeles) are located in the western half of the US.

Would create six monopoly routes with at least 10 flights per day

Analysis of current schedule data reveals that there are nine US domestic airport-pairs where American Airlines and US Airways currently both operate at least four daily flights. The following table summarises the routes (ranked by total weekly departures from the two airlines combined) and which other carriers operate the same routes.

Only the three routes involving Chicago O’Hare feature a third carrier (United all three cases). A merger between American and US Airways would thus result in six monopoly routes, currently served with between 10 and 15 flights per day.

19 European destinations served; 17 by US Airways, 12 by American


Given that Delta is a member of SkyTeam, and that the ‘new’ United (which merged with Continental) is firmly established within the Star Alliance, it would appear to make sense for a ‘new’ American to remain in oneworld, even though US Airways is currently a Star Alliance member. This would likely have an impact on the shape of the transatlantic network, the current state of which is summarised below.

Table here

Charlotte and Philadelphia services to Frankfurt, Munich (both Lufthansa hubs), Lisbon (TAP Portugal hub), Brussels (Brussels Airlines hub) and Zurich (Swiss hub) would likely be reconsidered due to Star Alliance feed being lost at the European end of the routes.

 

[jimntx]

Anna seems to have a hard time differentiating between AA and AE. If her headings had said AMR (the whole corporation), she would have been more accurate.

The following routes quoted by her are ALL served by American Eagle exclusively from an AMR perspective:

DCA-CLT
LGA-CLT
DCA-RDU
MIA-CLT
(And their return flights, of course.)

So, at least 3 of her 6 "monopoly routes" are US competing against American Eagle, not American Airlines. AMR's desire to shed itself of AE is not exactly a corporate secret. They just haven't found a rich enough guy just yet whose overblown ego makes him desperate enough to buy an airline.

 

[700UW]

And DL flies CLT -LGA

 

[USFlyer]

She also missed some, such as DCA-BNA.

Whether AA or AE, the flights are sold as AA. US would certainly have to divest some commuter slots at DCA, assuming someone else wants those. If not, then a combined AA-US would likely trim those routes and start new regional service elsewhere.

 

[FWAAA]

Unless the government has changed its mind about the permitted market concentration at DCA, a combined US-AA will likely have to divest the AA DCA slots, as US currently possesses the maximum permitted to one carrier. No such problem at LGA, thanks to the LGA slot giveaway (in exchange for some DCA magic beans, $65 million and a GRU flight in 2015).

 

[USFlyer]

When you say "maximum permitted", is there a published maximum? Or are you just going based off the last transaction that involved DCA slots?

 

[BoeingBoy]

Unless more slots are created by legislative action, there's an effective maximum per what was allowed in the slot swap. If the feds wouldn't let US have more then, why would they allow US to have more just because they merged with another carrier that also had slots. Also, I'd note that some of the beyond perimeter slots aren't transferable in a merger - they have to be returned.

Jim

 

[USFlyer]

I wouldn't assume anything based on prior transactions per se. The slot swap was wholly designed to increase concentration at DCA for US and LGA for DL. US buying AA outright is a different type of transaction, especially with AA in Chapter 11. That said, I still expect some material divestitures to be required, but I don't expect US would have to divest all of the AA slots. Certainly the DOT would let them keep enough to operate service to the core AA hubs (MIA, DFW, ORD).

I also imagine some negotiating where US would get to keep all of the commuter slots used by AE (despite the overlap DCA-RDU, DCA-BNU, etc.) and therefore give up more of the mainline slots. I doubt anyone other than US really wants the commuter slots.

Another angle here is for US to negotiate with "new entrants" and agree to a sale of the slots up front, thereby avoiding a potential fight with the DOT. In other words, get WN and B6 on your side up front.

I don't expect any LGA issues given the slot swap with DL and US's now drastically reduced presence there.

Does AA still have beyond perimeter slots? I didn't think they had any at this point.

(All this being said, I still have an issue with the Government managing slots like this. If an airline, through mergers and acquisitions, is able to build up a sizable operation, it should be allowed to keep the operation. WN can buy B6 if it wants more slots, for example. There's no need for the Government to choose the winners and losers.)

 

[FWAAA]

BoeingBoy nailed it.

In addition, there's a possibility that further consolidation might result in a combined US-AA being forced to divest more than just the total of AA's slots - the government might require a few more be divested to help out the "disadvantaged" carriers that have little to no access to DCA.

Did US get to keep HP's beyond perimeter slots when US and HP merged in 2005? If so, then maybe a combined US-AA would get to keep some of (maybe all of) the beyond perimeter DCA slots held by US and AA). AA had to return TWA's beyond perimeter LAX slot in 2001.

 

[USFlyer]

Yes, but HP bought US, so there was no issue with the HP beyond perimeter slots -- i.e., there was no transfer of the slots as a result of the acquisition. The old US never had beyond perimeter slots.

 

[BoeingBoy]

I wouldn't assume anything based on prior transactions per se.

And I wouldn't presume that it would be different just because it's a different type of transaction. The DOT made it pretty clear that there was a limit to the percentage of slots a single carrier could have in both DCA and LGA. While a merger wouldn't exceed that limit at LGA, it certainly would at DCA. Personally, I have no idea what slots would need to be divested - mainline, commuter, a combination, beyond perimeter, within perimeter, AA's or some of US' - but I can't see the DOT preventing over a certain percent of slots in one carrier's hands regardless of the type of transaction. As you sorta said, the divestitures were to prevent too much market concentration by one carrier, not because a slot swap was the cause of too much proposed concentration.

Jim

 

[USFlyer]

Well I guess we'll just have to wait and see.

And I freely admit my bias to avoiding Government intervention in this area. I don't think the Government should be in the position of picking winners and losers -- that's for the market to determine.

Let's remember that back during the UA-US merger in 2000-01, the issue was the combined overlap between IAD and DCA. i.e., the Government considered both airports as one in essence. For them to now say DCA stands on its own is contradictory. I'd prefer the Government just get out of the slots business altogether and let the market determine who flies what.

 

[ChockJockey]

And I freely admit my bias to avoiding Government intervention in this area. I don't think the Government should be in the position of picking winners and losers -- that's for the market to determine.

I agree. The market should decide which cities the various airlines get to dominate, monopolize and gouge.

 

[USFlyer]

I agree. The market should decide which cities the various airlines get to dominate, monopolize and gouge.

That's not what I said. Competiton and demand prevents this from happening. US can only charge so much before passengers will book other carriers with connecting service.

 

[ChockJockey]

That's not what I said. Competiton and demand prevents this from happening. US can only charge so much before passengers will book other carriers with connecting service.

One would think. But as is often the case with massive industries that end up containing but a handful of firms, collusion eventually becomes more profitable than competition.