US Long-term Standalone Prospects

[ChockJockey]

There are a number of people on these boards and elsewhere that are opposed to the idea of a US-AA merger. Most have valid points while some are just trolls and amateur propagandists. My question then is if US should remain a standalone carrier, what should its long-term strategy be to remain profitable and competitive?

This is a thread for the naysayers to have their say and enlighten us with how remaining standalone is a superior alternative. I'm interested in knowing what makes the standalone crowd's kool-aid so much more appealing than Parker's. Short of merging, what does US do to prevent a solitary slide into further irrelevance and ultimate oblivion?

 

[traderjake]

Nothing to prevent it.

 

[signals]

Sorry, but I'm not US Airways' brilliant CEO. That's his job, and he has eluded to having a standalone plan. The funny part is that even if a merger were to happen, it would be interesting to see the outcome as the division widens. Everybody expects a merger to benefit them, yet common sense dictates that someone has to be sacrificed.

 

[The Bagfather]

Here's what to do: Go for however long is nessesary to be called a stand alone airline, wait one more week then merge with American.

 

[Crash Pad DCA]

Our options to remain standalone and survive appear to be limited. Before Southwest's purchase of AirTran, we were about the same size as Southwest - roughly same number of employees, roughly same gross revenue. However, Southwest made its gross revenue from domestic flying and US achieved that same number (but not profit) from domestic PLUS international flying. But now US is being SQUEEZED from two sides. Southwest has now grown many percentage points by gobbling up AirTran. And now US cannot match Southwest/AirTran's COMBINED gross revenue. To do so, we would have to add more planes, pilots, FAs, etc. and that's not happening anytime soon. On the other side of the SQUEEZING is the new United. As soon as Continental left SkyTeam (or ran away whimpering tail between legs after DL merged with NW) US became the (very) junior partner in Star Alliance here in the United States. US made a good share of money code sharing with UA before CO arrived (for example UA pushed A LOT of its Carribean pax through US). With CO on the scene in Star bringing its extensive International (including Carribean and MUCH better European coverage than UA) US became less relevant. A few saavy observers immediately saw the CO move to Star would eventually lead to either a UA/US/CO merger or a UA/CO merger especially given the DL/NW tie up. Well the UA/CO tie up happened. We are still in Star but the combined UA/CO doesn't really need to share revenue (code-share) with us that much, since now they go "everywhere". UA/CO and now focus on competing against DL/NW. Without more planes/pilots 'n people US as a stand alone will never beat the combined Southwest/AirTran for domestic leisure travel AND US as a stand alone is not big enough to compete with the domestic and international coverage of UA/CO, DL/NW or even (stand alone...for now) AA. Gobbling up Frontier, Alaska or JetBlue won't help US long-term either (not enough increased gross revenue or added International capacity to Latin America, Europe or Asia). HOWEVER, that said, AA is particularly weak in the face of the combined UA/CO and DL/NW. AA has Latin America sewed up, but their underwear is showing (no coverage) in Asia and Europe. In the short term (5-7 years), US could declare domestic detente with Southwest/AirTran (skirmishes here and there, but no real winner 'cept LAS whimper. But hey! We have DCA! For now...). But the long term prospects for AA don't look good. Even if AA does emerge from BK without US (pun intended) it is not clear how they are going to grow flights/capacity by 20% in 5-7 years in order to match the domestic and international capacity of UA/CO and DL/NW. Who is going to give AA the money to buy more planes, hire more pilots, FAs, CS and FS in this era of austerity?! So, US either gets married right now to fight off Southwest/AirTran on one side and UA/CO and DL/NW on the other side, OR we stand alone and double down for 5-7 years fighting minor skirmishes with Southwest/Airtran and simply wait 5-7 years for AA to lose its own post-BK battle trying to find the money/people/planes to grow 20% to fight off ALREADY stronger UA/CO and DL/NW. And THEN we merge with AA after their 5-7 year post-BK boondoggle is over/fails. Right now, Horton et al. at AA are playing chicken. They're just holding out and talking mad (stand alone/cornerstone) game until they are assured they will get their $10/$12 million payouts. Once that is assured, it's game over and they will turn over the reigns to Parker/Kirby/Isom/etc. Then Parker will go from making chump change $2 million/year to making $12 million/year like his buddy Smisek at UA/CO did after the UA/CO merger because he is handling "more responsibility". Boeing is bluffing, too! They're just holding out for assurances that Parker et al. won't make the new AA all Airbus. As soon as Boeing gets assurances that the new AA will keep buying Boeing (AA is almost 100% Boeing now while US is (unceremoniously) dumping the last of our well worn 737s), Boeing will fold and put their cards on the table and support the merger, too. PLUS the NY and TX Congressional Delegations are NOT going to put up with all of the employment/business/economic turmoil and pain the current AA BK and AA post-BK plans are going to place on those two power house states immediately and over the next 5-7 years. Too many jobs and dollar$ lost. Too many voters will be writing letters. The TX and NY delegations are going to put pressure on Horton et al. to fold and walk (or run!) away, too. The merger will happen now or it will happen in 5-7 years. If it doesn't happen now, "stand alone" US can continue to successfully duke it out against Southwest/Airtran domestically, and continue to work the hell out of the international flights in PHL to stay relevant in Star, and just wait for AA's inevitable post-BK failed fight against both UA/CO and DL/NW (now with their own airplane gas pump!). God Bless "US" all and God Bless the US(AA)!

 

[ChockJockey]

Everybody expects a merger to benefit them, yet common sense dictates that someone has to be sacrificed.

Nothing ventured nothing gained. Most of the things you say are useless at best. You've earned an ignore, my first ever.

 

[ChockJockey]

Our options to remain standalone and survive appear to be limited...God Bless "US" all and God Bless the US(AA)!

Interesting post, thanks.

 

[signals]

Nothing ventured nothing gained. Most of the things you say are useless at best. You've earned an ignore, my first ever.

Thank-you!

My feelings aren't hurt, but my self-esteem is soaring for being the first!

Time will tell whose words come back. Too bad you can't read this. 🙂

 

[FWAAA]

HOWEVER, that said, AA is particularly weak in the face of the combined UA/CO and DL/NW. AA has Latin America sewed up, but their underwear is showing (no coverage) in Asia and Europe. In the short term (5-7 years), US could declare domestic detente with Southwest/AirTran (skirmishes here and there, but no real winner 'cept LAS whimper. But hey! We have DCA! For now...).

"No coverage in Asia and Europe?" Really?

This summer, AA flies 19 daily flights to London from BOS, JFK, RDU, MIA, DFW, ORD and LAX. In addition, BA flies another 40 daily flights to London, and thanks to the immunized alliance between AA, BA and IB, AA shares revenues and profits on these TATL flights. In addition to those 59 daily London flights, AA flies another 19 daily flights to Europe, including Paris, Rome, Milan, Barcelona, Frankfurt and Madrid (plus a few other places). Let's see: 38 daily flights on AA metal to Europe, 14 of which are flown on 3-class 777s and most of the others on 763s (with a few 757s thrown in from BOS and JFK). That's "no coverage" in Europe? How's that compare to US' schedule to Europe?

Asia? Are you serious? AA flies five daily 777s to Tokyo plus three daily 777 flights to China. In Tokyo, AA offers numerous connections throughout Asia on its immunized joint venture partner, JAL (which recently reported huge profits following its bankruptcy two years ago). Just like with BA/IB, AA shares revenues and profits on TPAC markets with JAL. While not an immunized joint venture, AA enjoys a close relationship with Cathay Pacific, which offers numerous daily nonstops to HKG from LAX, SFO, ORD and JFK and numerous connections throughout Asia and to China from HKG. To Australia, AA enjoys an immunized alliance with Qantas, the largest US-Australia carrier. How's that "no coverage to Asia" compare with US' Asian presence?

But the long term prospects for AA don't look good. Even if AA does emerge from BK without US (pun intended) it is not clear how they are going to grow flights/capacity by 20% in 5-7 years in order to match the domestic and international capacity of UA/CO and DL/NW. Who is going to give AA the money to buy more planes, hire more pilots, FAs, CS and FS in this era of austerity?! So, US either gets married right now to fight off Southwest/AirTran on one side and UA/CO and DL/NW on the other side, OR we stand alone and double down for 5-7 years fighting minor skirmishes with Southwest/Airtran and simply wait 5-7 years for AA to lose its own post-BK battle trying to find the money/people/planes to grow 20% to fight off ALREADY stronger UA/CO and DL/NW. And THEN we merge with AA after their 5-7 year post-BK boondoggle is over/fails.

Who is going to finance the new planes at AA? It may not be clear to you, but it's pretty clear to those who have been paying attention. AA already has commitments for lease financing for the first 260 narrowbodies from Airbus and Boeing - that's all the deliveries from 2013 thru 2017. AA has 10 new 777-300ERs on the way in the next 18 months (by December, 2013) plus six more 777s by 2016. AA has 42 787-9s on order with deliveries scheduled to begin 2014 or 2015.

So far in 2012, AA has increased its revenue by almost $1 billion compared to the first five months of 2011, so additional revenue has been shown to be no problem. AA's unit revenue has been growing faster than unit revenue at UA or US. Funny how you've already declared AA's restructuring plan to be DOA despite early returns showing that it is working.

Yes, AA and US will probably combine. If they do not, US will find itself on life support in the near future, while AA continues to grow. Low-cost providers tend to grow while high-cost providers tend to contract, and US is a high-cost provider. Following its bankruptcy, AA should be a lower-cost provider. US brings nothing to the table in Asia - not a single Transpacific flight and not a lot of customers in cities with O&D demand to Asia like SEA, SFO, LAX, CHI, NYC or DFW. Fortunately, AA doesn't need help in South America - where US will bring its one flight from Charlotte to Rio. And in Europe? US has a decent summer schedule to Europe from PHL and CLT, but brings no strength in NYC or CHI where AA needs to bulk up against UA and DL.

 

[firedougparker]

I'm not opposed to any merger. I'm opposed to this one specifically (and to Parker's lack of leadership in general). A few points:

1. Size does not guarantee profits. Look at how United swings between profit and loss.
2. No matter what Doug says, there would be job losses during a merger with American. The whole point of an airline merger is reducing expenses where both airlines overlap. That means jobs lost and hubs closed.
3. We have a mess on our hands YEARS after the America West merger with our various work groups. American has a toxic relationship with their own unions. Why combine an outhouse with a swamp?
4. We'll lose our own unions. AA has more employees so their unions will dominate us. And their agents aren't even unionized.
5. Phoenix will get the chop. After they move HQ to Dallas, PHX just won't be needed with all the routes covered by DFW and LAX. And how much will CLT and MIA overlap? PHL and JFK are practically neighbors. US will disappear.

I have many more reasons, but I'll let you chew on those for a while and see if you can post an intelligent response instead of disparaging me with personal attacks.

 

[signals]

Intelligent? Intelligent involves truth and people tend to lie when they say they can handle the truth. Their truth at US is denial and thenile acts as a band-aid to their bleeding jugulars. You are obviously in the industry and see better than what an outsider sees.

If a merger must take place for AA, I hope they act on intelligence and merge with B6 and come home to NY where they belong!

 

[UPNAWAY]

I think both need it in the long run and it will be best for the majority of employees. As a PHX based employee worst case I retire with much better flight benefit opportunities.

 

[wings396]

Yes, a merger with B6 will put AA right up there in the ranks with DL & UA. I assume that you realize just how much flying AA has handed over to B6, so a merger with them would accomplish little more that getting them back what they have given away for free....

 

[signals]

But perhaps B6 is targeting Delta and AA would give them an upper hand.

just sayin'

 

[wings396]

Not saying that B6 wouldn't be a worthwhile asset for DL or AA, but they won't give AA any major competitive advantage when it comes to DL & UA in overall size and markeshare. You can only feed JFK so much.