What Will Delta's response be if AA takes jetblue?

[johnny kat]

If PHL and JFK are considered two distinct markets and independent of one another it seems to make sense that the new AA would need to acquire B6 in order to even things out in the NYC market. With that said maybe DL will purchase B6, even though there would be alot of antitrust objections and slot divestures. Maybe it would be better for DL if B6 went out of business. Either way I think JFK will be the battle ground for the next airline squabble between AA and DL with B6 caught in the middle.

 

[WorldTraveler]

first of all, the whole notion that AA can successfully acquire B6 is far from a given.
Even if it makes strategic sense, B6's entire network is built around its low costs; AA's costs will be much higher and thus a lot of routes that B6 currently flies just won't work.
The only real value to AA in NYC is all of the slots B6 holds - but in order to get those slots they have to buy a whole lot of other assets including huge Florida and Caribbean operation from which AA has walked away from many markets over recent years. Add in that there will certainly be divestitures if AA/US/B6 merged, and you have to ask what is the real value.
B6 is relatively cheap in market value because they are not delivering the profits they once did.

And, in reality, B6 is already facing enormous financial pressure because of DL's buildup at LGA; much of B6's short haul network can be served from LGA because it is inside the perimeter. Even based on DOT stats from last summer - the most recent - DL is pulling a lot of local NYC traffic from B6 at JFK and onto DL flights at LGA. DL has enormous capacity to shift local NYC traffic to LGA, regardless of who else hubs at JFK. EWR does have the advantage of having a full hub at one airport, even if EWR is not the preferred airport for either NYC shorthaul or longhaul local traffic.
Finally, AA can get what it needs in NYC w/ the slots it has - if they can successfully win business away from B6 DL, and UA.

Let's also not forget that AA/US has yet to fully merge. AA/US creditors (who will become stockholders) are not going to be the least bit interested in adding more risk to their investment until the current merger is up and running - and by that time, the competitive situation could change a lot.

IF - and that is a big IF - B6 merges w/ anyone, then it would be appropriate to talk about DL's response.

For now, DL is still the largest carrier at both LGA and JFK.

 

[NewHampshire Black Bears]

first of all, the whole notion that AA can successfully acquire B6 is far from a given.
Even if it makes strategic sense, B6's entire network is built around its low costs; AA's costs will be much higher and thus a lot of routes that B6 currently flies just won't work.
The only real value to AA in NYC is all of the slots B6 holds - but in order to get those slots they have to buy a whole lot of other assets including huge Florida and Caribbean operation from which AA has walked away from many markets over recent years. Add in that there will certainly be divestitures if AA/US/B6 merged, and you have to ask what is the real value.
B6 is relatively cheap in market value because they are not delivering the profits they once did.

And, in reality, B6 is already facing enormous financial pressure because of DL's buildup at LGA; much of B6's short haul network can be served from LGA because it is inside the perimeter. Even based on DOT stats from last summer - the most recent - DL is pulling a lot of local NYC traffic from B6 at JFK and onto DL flights at LGA. DL has enormous capacity to shift local NYC traffic to LGA, regardless of who else hubs at JFK. EWR does have the advantage of having a full hub at one airport, even if EWR is not the preferred airport for either NYC shorthaul or longhaul local traffic.
Finally, AA can get what it needs in NYC w/ the slots it has - if they can successfully win business away from B6 DL, and UA.

Let's also not forget that AA/US has yet to fully merge. AA/US creditors (who will become stockholders) are not going to be the least bit interested in adding more risk to their investment until the current merger is up and running - and by that time, the competitive situation could change a lot.

IF - and that is a big IF - B6 merges w/ anyone, then it would be appropriate to talk about DL's response.

For now, DL is still the largest carrier at both LGA and JFK.

The ONLY places DEL-DUH will ALWAYS be the Big Dog...is HOT-LANTA, DTW, MSP and SLC.
Down-the-road, all other bets-are-off !

 

[WorldTraveler]

Hey Bears,
How ‘bout you hold onto that thought until all the corporate double-speak to win approval for the AA/US merger dies down and the real evidence becomes apparent? Anyone who looks even a tad into the future understanding the past knows that all of the promises of world domination that AA/US employees and fans have is likely not realistic.

Just a few little factoids for you to consider.

1. The DOT has released traffic stats for US airlines for 2012, DL IS the largest US airline by passenger boardings.
http://www.rita.dot.gov/bts/press_releases/bts016_13
2. ATL is the largest airline hub in the US and in fact the known universe. DL’s hub in ATL is not what it is because of the huge ATL market but because DL connects more passengers thru ATL – from other cities around the globe – than any other airline does anywhere. ATL is the largest hub because there are passengers boarding those flights on the other end of those flights. DL is currently the largest airline in more cities in the US than any other airline.
3. DL is taking a number of initiatives to shift traffic from its connection carriers to DL mainline which will result in DL mainline growing even more; no other airline is doing the same thing which means DL’s proportion of seats in the US will only grow.
4. As much as you and others want to believe that AA/US combined will be as large as or larger than what they are today individually, every fact shows that is an unrealistic expectation. DL has led the industry in aggressively matching capacity to the market and has produced financial results superior to the industry for a number of years. UA/CO is finally cutting capacity two years after the merger and their revenue is increasing, although they now have to figure out how to reduce their workforce by the amount of capacity they have cut. WN has had to aggressively cut capacity at FL and slow growth at WN in order to get its revenues up in part to match WN's higher costs than FL's. Over the past two years, in aggregate, DL has reported RASM growth higher than any other large US carrier.
5. The creditors of AA did not agree to a merger with US in order to keep the amount of capacity in the system; they know full well that reducing capacity – just as DL has been doing for years – is the only real way to increase revenues in order to match costs.
6. Speaking of costs, AA and US combined do not and will not have the industry –leading costs that are necessary to control markets; AA/US’ costs will not even be the best among legacy carriers. Have you noticed the absence of claims to that effect? 35 years after deregulation it should be apparent that the carrier with the lowest costs grows and they do so at the expense of carriers that have higher costs. There are a number of key strategic initiatives that other carriers are implementing over the next several years that will directly target a number of key AA/US markets and those carriers have lower costs than AA/US. To expect that AA/US will maintain its current revenue against those carriers is not realistic. It also remains true that new AA is a distant number 3 in key global markets such as NYC and in Asia, even considering alliance partners, and no reasonable analyst has suggested they will be able to close that gap, resulting in significant implications for obtaining top corporate revenue. Conversely, UA has shown no plan to redeploy the capacity that it is cutting; AA and UA both face the necessity of cutting capacity in order to fund their higher merger-related costs.
7. And, finally, AA/US are still a long way from being profitable, independently or on a pro forma basis, even over a year into AA’s BK. When you consider that Parker obtained labor buy-in from both AA and US employees by promising hundreds of millions if not billions in dollars in labor cost increases, the challenge to get to profitability is even more daunting. Add in that AA/US is spending money on new aircraft at a faster rate than any other airline in the US and the new AA’s ability to be financially viable is even harder to believe; don’t forget that even more the merger, AMR already agreed to freeze, not terminate, its pension benefits which will add as much as $10B more debt to its balance sheet which will require annual payments of $500M or more (US’ entire profit) at the same time that new AMR will have to be paying separate retirement benefits for its current employees. Not surprisingly, DL and WN are cutting their spending and both are much more profitable than either AA or UA. Size does not matter if a company cannot satisfy its investors – and DL has indeed said they are not focused on being the largest airline but rather in being largest enough where it counts and delivering superior financial results to its investors. That might be why DAL’s market value is the highest among US airlines and larger than what AA/US have targeted for the new company. The best employee security comes from working for a healthy, profitable company. There are lots of airline employees who once worked for the largest airline that is either non-existent today or one that was reduced in size thru bankruptcy.

We all want our home team to win and there is nothing wrong with that. But when expectations are disconnected from reality, one is setting themselves up for disappointment.

First quarter 2013 financials for the industry will be released in a couple weeks. Those might give a pretty good indication of where the industry needs to come and which companies “get it” and which ones still have a lot of work to do.