US posts another record profit!

[FWAAA]

Any ideas as to why they may have been denied? Could it be the DOJ is hiding something that they don't want AA/US to see? If everything is being done the same, no reason to hold any previous info back, right? Nah, none of our fine government agencies would ever do that.

The lawyers for AA and US essentially wanted to review the DOJ files on those prior mergers, which is understandable. Hiding something? Probably.

Let's assume that in the files of the NW-DL and UA-CO mergers are some memos written by some Antitrust Division staff lawyers analyzing the reduction in competition and concluding "this merger [NW-DL or UA-CO] is a clear-cut violation of Section 7 and the DOJ should file suit to enjoin it." And, of course, those mergers were not enjoined.

While that would make for some fun and interesting reading, such a memo has no relevance to this case. Whether this merger violates the law depends on the reduction of competition resulting from this merger. The failure of prior, incompetent, Attorneys General to sue to block those prior mergers doesn't affect the legality of this one.

There is no legal doctrine that says "the government's failure to protect its citizens from antitrust violations in the past means that it must stand down in future mergers so that all participants in that industry have a chance to harm consumers and extract higher prices from reduced competition."

If there was legal precedent that established such a doctrine, Chip would be cutting and pasting the entire ruling day and night, posting it here and everywhere else. The union talking points would contain the citation to that precedent. Laura Glading would be citing the case nonstop.

 

[WorldTraveler]

Whether a market is a monopoly or not has nothing to do with whether other competitors COULD enter a market or not but whether they actually exist.

AA/US would create a monopoly in a number of markets and it is not the gov't's job to try to predict whether other carriers would ever serve those same markets. Its job is solely to determine if the combination of two existing businesses would create unfair competition and it is on that basis that it is objecting to this merger.

 

[A320 Driver]

Whether a market is a monopoly or not has nothing to do with whether other competitors COULD enter a market or not but whether they actually exist.

AA/US would create a monopoly in a number of markets and it is not the gov't's job to try to predict whether other carriers would ever serve those same markets. Its job is solely to determine if the combination of two existing businesses would create unfair competition and it is on that basis that it is objecting to this merger.

Like they objected to Boeing/McDonald Douglas? What a bunch of stupid government hypocrites. They screw up EVERYTHING they touch.

 

[Jester]

Whether a market is a monopoly or not has nothing to do with whether other competitors COULD enter a market or not but whether they actually exist.

AA/US would create a monopoly in a number of markets and it is not the gov't's job to try to predict whether other carriers would ever serve those same markets. Its job is solely to determine if the combination of two existing businesses would create unfair competition and it is on that basis that it is objecting to this merger.

I completely disagree that the abilty to enter a market has nothing to do with the issue. Did you consider that prehaps airlines do not enter a market because the profit margins are not enough to justify service either because the market is not large enough or the lone air service would not be considered excessively high fares as to poach a target? There have been plenty of examples where US had some very hefty fares and competitors jumped into the market, thus lowering the fares. Why would a combined AA/US operation of a near monopoly between HHH and DUR be any different for either DL or UA to provide an alternative?

Also you keep mentioning the size of UA and how if size matters, then we should expect UA to be on a comparable profitability to that of DL... let's be blunt... UA is a slow-motion train wreck and it is an open secret that Smisek's job to be a questionable proposition. Frankly, I know many of the old UA people and they are part of a large number of bitter, angry employees still stinging from a bankruptcy in which they lost huge sums and it shows in its operations. Smisek's CO should have looked for another suitor, but UA's overseas operations along with the ORD and SFO hubs were too tempting to ignore. If UA ever gets its act together with its ideal hubs of LAX, EWR, SFO, IAH and ORD, and CO's former level of service, it will be comparable to that of DL.

While I understand DL manages a sound operation, I also realize that DL does not have any real level of like competitor. UA operations are a shambles, and AA and US are half the size. One might argue DL has its own de facto monopoly, and if UA straightens-up, there would be an effective duopoly leaving both AA and US in no man's land of being too large as a niche carrier and too small to be a global power. If competition was really the primary objective of the DOJ, then no mergers should be allowed, because even removing one competitor from the marketplace, even a small one (YX anyone?) will reduce competition. Therefore, I find it difficult to accept as that government who created these two monster carriers by allowing them to merge with equals, and in theory, giving them to ability to destroy AA and US in the process, but then denies their ability to survive through a mutually agreeable merger.

 

[WorldTraveler]

You miss the point.
A monopoly is a monopoly whether a competitors and has nothing to do with whether a competitor MIGHT enter a market but whether they are there or not.

As such, DL does not have a monopoly, esp. against UA where the two compete fiercely. DL is absolutely winning in the market place while UA does stupid stuff like ticking off its customers and employees, throwing tons of capacity into markets where carriers like VX enter and then blame the revenue management system for taking too many low yield bookings, being unable to maintain older aircraft in UA hub cities that had nothing to do with the merger....

The simple fact is that UA threw together their merger in order to try to keep up with DL but did it without ensuring that the very reasons that have made the DL merger work exist at UA - and they don't.

Further the whole notion of "a perfect route system" will be increasingly called into question as it becomes increasingly obvious that AA and UA can't deliver the revenue benefits compared to DL and even other low fare carriers because they cannot overcome the competitive pressures that exist in those large markets.

DL's 10% cost advantage will give DL powerful ammo to use to extract revenue from key UA hubs, all of which are highly competitive to begin with, including to UA's key Pacific markets where they specifically noted that they saw large decreases in yield due to competitive pressures. Having the highest costs is a terrible brick to have around one's neck while trying to fend off growing numbers of competitors - and that is exactly what is happening to UA in many of its key markets.

UA doesn't have anywhere close to the level of share in its hubs as DL or US have in theirs - and guess which two network airlines are making money but DL and US? AA enjoys a revenue advantage at DFW and MIA but DFW is about ready to come to a screeching halt. MIA is the last stand for the Mohicans and MIA's monopoly (and that is an accurate term to describe their presence to Latin America from Florida by US carriers) is subject to fall as soon as DL decides they are ready to take on AA in that market.

DL and US' route systems are built around major connecting hubs in medium sized cities where they can control the market better and where costs are lower.

The difference is that DL fought thru BK to hold onto its presence in NYC and has created a strong enough position with the slot deal such that it now has sufficient barriers between it and the size of other carriers EVEN THOUGH DL DOESN'T EVEN HAVE HALF OF THE MARKET.

DL and US both have recognized the value of being the low cost carrier among their peers and have succeeded at doing that. DL is now aggressively growing on the west coast esp. to Asia, the heart of UA's route system, with a mainline CASM that is 10% lower than UA's. It won't take too much effort on DL's part before they start inflicting lasting and irreparable damage on UA.

US has recognized the value of low costs and has succeeded in using that advantage primarily by pulling connecting traffic off of other carriers.

US is at a disadvantage to DL, however, because US doesn't have the large market presence that DL has, doesn't have the loyalty of its employees and customers, and doesn't have the financial strength necessary to take on its peers.

Those who think the AA/US merger will go smoothly should realize how very different AA and US are in every aspect of who they are and why finding a future built on strength will be incredibly hard to do and might end up looking not much different from the UA/CO merger.

 

[jimntx]

Those who think the AA/US merger will go smoothly should realize how very different AA and US are in every aspect of who they are and why finding a future built on strength will be incredibly hard to do and might end up looking not much different from the UA/CO merger.

Aye, there's the rub.

I don't think very many people on either side of the aisle in this shotgun wedding realize what an obstacle this will be. There will be constant reminders to each of "the good ole days" (formerly known as "these trying times in which we live.") It happens in every merger that there are instances where "we didn't do it that way" arise almost every day.

Everything from management style to how/when the hot towels are given to first class passengers will cause friction depending on who is involved. When Chevron bought Texaco--both huge, multinational oil companies--one would think that it should have been a piece of cake to merge the two operations. However, the hardest thing to accept for my Texaco friends who were still there was the extreme Theory X management style of a number of the Chevron managers in IT. I asked a friend how things were going in the wonderful world of ChevronTexaco. She replied that I was mispronouncing the name of the new company. I asked, "How so?" She replied, "The Texaco is silent."

And, when the goodies promised to the AA folk are not forthcoming because there's not enough money to pay for them and give the same goodies to the LCC folk, then the real friction will start.

 

[nycbusdriver]

And, when the goodies promised to the AA folk are not forthcoming because there's not enough money to pay for them and give the same goodies to the LCC folk, then the real friction will start.

You pretty much had me onboard until that last line, when I had to laugh out loud.

Parker doesn't "give" goodies to anyone. Even when they are obligated by contract, the typical line is "grieve it." They will do whatever is necessary to keep the operation running. If we peons felt an deep obligation to our customers and Tempe thought we would show up for work anyway, then paychecks would be withheld with a note saying "grieve it."

Very, very, VERY early in this process we warned the AA people that Parker is NOT their friend, nor is he their "savior" from your current management. "Meet the new boss; same as the old boss" is not quite true. Should probably be sung, "Meet the new boss; worse than the old boss."

 

[jimntx]

Well, that's pretty much what I've been saying over here at AA, but my fellow employees are convinced that DP is their savior. The ones who are willing to admit that may he isn't just say, "Well, at least he's not Horton." Which to me is the equivalent of saying, well, at least it's not Alzheimer's when told one is terminally ill with cancer.

When I asked of some of our APFA (flight attendant union) honchos if we had those promises in writing, they would always change the subject to the current weather conditions. I'm afraid that the AA peons are going to be surprised when they have to continue working under our last best final concessionary contract because none of the promises are in writing.

 

[WorldTraveler]

and it all doesn't change that labor can't ever win if the business plan doesn't generate the revenues necessary to pay people the industry leading wages all employees want.

And the airline industry is riddled of examples of airlines that couldn't win in the marketplace because of major strategic missteps including their own inability to keep costs under control and the employees were the ones who most paid for those missteps.

The health of the company is absolutely related to the wages its people receive.

 

[robbedagain]

Jim them aa folks think dp is a savior got news they better rethink if we do merge dp is a numbers type man he cut n cut just to make profits wt even is us/aa do merge I dont know if itll be as bad as ual/co but clearly aa folks want their mgmt gone

 

[Phoenix]

Like they objected to Boeing/McDonald Douglas? What a bunch of stupid government hypocrites. They screw up EVERYTHING they touch.

The application of antitrust law is sufficiently abstract, broad, contradictory, and mailable so as to ensure extraordinary billing opportunities and political cover for graft. But I may change my mind. I am considering becoming more cynical.

 

[WorldTraveler]

Jim them aa folks think dp is a savior got news they better rethink if we do merge dp is a numbers type man he cut n cut just to make profits wt even is us/aa do merge I dont know if itll be as bad as ual/co but clearly aa folks want their mgmt gone

I do think AA and US operationally have it better off and AA still has a good sense of what it takes to keep their customers happy... both of which are things that UA has blown royally.

But as bad as perception may be, the real issue for UA has been costs that have grown way too fast and are not thru growing and UA's hyper-aggressive approach to trying to chase out competitors to the ultimate detriment of UA more than anyone else.

Given that UA is already committed to doing the same thing in SFO-SEA due to DL's entrance into the market, there will likely be plenty of excuses for their poor performance.

But let's not forget that AA will face huge competitive pressures in Dallas while DCA could see a host of new competition at DCA in order to get the merger done. How both of these situations are handled could say a lot about how well AA/US will do with revenue as a merged company.

 

[Reed Richards]

How both of these situations are handled could say a lot about how well AA/US will do with revenue as a merged company.

No long reply required (but always appreciated!) Do you still see the merger proceeding? Pretrial settlement? Best. RR

 

[WorldTraveler]

I don't legally see a basis for completely blocking the merger.... but I don't know everything the DOJ knows but it is extraordinarily rare that a civil legal issue cannot be resolved.

The question to me probably comes down to whether the cost of settlement is too high to make the ongoing business viable or take away too many core assets to allow them to effectively compete.

The chances are real high that AA/US are looking at sizable divestitures in order to make the deal work.

The notion that they will walk back out of court with the DOJ totally have been kicked to the curb is not going to happen.

AA/US has to decide if the DOJ's requirements are too much.

My expectation remains that they will choose to settle.

 

[robbedagain]

But at what cost is what remains to be seen I wonder if say aa leased all their slots at dca to say wn n b6 if that would be the solution similar to ual leasing their slots at ewr