Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
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American, US Airways respond to DOJ complaint
American Airlines and US Airways filed their responses to the DOJ lawsuit seeking to block the merger. The Dallas Morning News has this synopsis. The full, 50-page US Airways response is here.
There’s one element that particularly caught our eye, and that is market share. While DOJ points out that the New American, along with Delta Air Lines and United Airlines, would control some 80% of the available seat miles (a statistically correct figure), AA and US point out that in terms of domestic market share, Southwest Airlines, other LCCs plus Alaska Airlines and Hawaiian Airlines control 40% of all domestic passengers.
The Complaint’s focus on legacy airlines causes it to ignore the most meaningful competitive development in the airline industry since deregulation: the emergence of low cost carriers. Southwest, which in 1978 was an oddity limited to intrastate flying in Texas, is now the country’s largest domestic airline, carrying more passengers last year than any legacy carrier and more than US Airways and American combined. Other low cost carriers, including JetBlue, Spirit Airlines, Virgin America, Sun Country, and Allegiant, are expanding at dramatic rates. These carriers, together with Southwest and regional competitors Alaska Airlines and Hawaiian Airlines, now transport over 40% of all domestic passengers, and that share continues to grow. The demonstrable success of low cost carriers is a market driven response to consumer demand, but the Complaint inexplicably ignores their profound and permanent effect on industry competition.
In fact, Southwest has for many years carried more domestic passengers than any other airline–which begs the question, why didn’t DOJ block the Southwest-AirTran merger, which would only increase and consolidate this concentration?
The court should find for AA and US. This lawsuit is an embarrassment to DOJ for its political motivations, poor research and lack of understanding of the airline industry.
Its going to be interesting how this pans out. I personally don’t want to see the merger with D.P. & Co. running the show.
The DOJ is 63-1 the past number of years, its going to be a tough fight for US/AA.
Interesting article:
http://www.frequentbusinesstraveler.com/2013/09/american-us-airways-to-seek-extension-for-merger-deadline-defend-plans-in-court-filings/
What’s interesting from the article:
“The two airlines told members the creditors’ committee for American Airlines parent AMR Corp. that they plan to ask their boards of directors to extend the merger termination date beyond its current expiration, which is December 17, the Wall Street Journal reported.”
Looks like they might be “all-in”, but are the creditors “all-in”? After a while, the returns of a merged company might not out-benefit the costs of being in BK. We’ll see.
More important which helps the DOJ case IMHO:
American did concede, however, that it “could compete as an independent company, although it could not compete as effectively as it would with the improvements brought by the merger.“
As an outsider (Canadian) it appears that this joint federal/state action is a shot across the bow, placing the authorities on record and with precedence, against further clearly planned ‘amalgamations’ of the legacy carriers. It is a poorly kept secret (it must be if common knowledge up here) that US/AA then planned to merge with another legacy as soon as decently (ie public had forgotten) possible.
Comparing AA/US, DL, and UA to WN, B6, AS, and others is like comparing apples to oranges. WN, and their competitors are true LCC carriers, the key words being ‘low costs’. They offer air transportation from point A to point B, and usually many stops in between. While they do offer non-stop service in some markets, their bread and butter is stopping along the way to meet the destination plans of many more pax. The ‘legacy’ carriers offer more non-stop, or one stop service, and a bag of peanuts and half a cup of Coke. But the legacies do offer amenities the LCCs don’t, thus the usually high cost to ride their airplanes. You may recall that US swallowed up a LCC when it merged with HP back in the mid 2000s. It was US who eliminated a very good competitor in the LCC market. Now they want to claim it is it those same LCCs that command 40% of the entire market. In reality there are two different markets, the LCC market and the Legacy market. Neither US, nor AA are part of the LCC market.
Not sure Alaska Airlines would agree with being labeled a low cost carrier…
Lower 48 costs are actually quite comparable.
I think response #3150 (last post) by spin88 is an interesting read. The blogger is a lawyer.
On this link:
http://www.flyertalk.com/forum/american-aadvantage/1438326-aa-us-merger-agreement-announcement-doj-action-discussion-consolidated-210.html
Thanks – interesting read!
Indeed. The blogger has posted on that thread a number of times.
on it’s very best of days, Holder’s Justice Department is merely incompetent.
A political kickback is almost certainly being sought here, as with all top-level Justice decisions for the past 5 years.
AA having two months of showing profits is what happens when wages and lease payments are on par with the other carriers who went through chapter 11. AA will do just fine without a merger. US on the other hand will have an uphill climb to compete with AA,DL,and UA, not to mention the LCC’s. I read some months ago that US has a large payment coming due next year and this might be part of US pulling out all the stops to complete this merger as AA has quite a large cash reserve that will benefit US.
I do not trust any airline management group that nickels and dimes its customers as US has done over the years, I.E. charging for water,ala Spirit and charging fees to its frequent flyers to redeem miles on the web site.
IIRC, it was about $1.4 billion in payments due in 2014. I agree AA will do just fine without a merger, in fact I want to the merger to be blocked. Doug Parker & Co. can go back home to PHX as far as I’m concerned.
I second that.