Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Bjorn’s Corner: New engine development. Part 4. Propulsive efficiency April 19, 2024
- Boeing unlikely to meet FAA’s 90-day deadline for new safety program April 18, 2024
- Focus on quality not slowing innovation, says GKN April 18, 2024
- Boeing defends 787, 777 against whistleblower charges April 17, 2024
- Dissecting Boeing CEO’s statement next new airplane will cost $50bn April 15, 2024
DOJ lawsuit vs AA-US reads like political document
Note: Some articles of interest:
- Robert Crandall, former CEO of American, has this op-ed piece in The Wall Street Journal (via Google News, so it should be accessible to Readers).
- With the concentration of airline service that the US Department of Justice is so worried about, this article argues that foreign carriers should be allowed to operate US domestic service.
The lawsuit filed by the US Department of Justice against the proposed merger of American Airlines and US Airways reads more like a political document than a legal brief.
It’s clear the true intent is to force American and US Airways to divest slots at Washington Reagan National Airport. But in throwing in the proverbial kitchen sink, DOJ has made a mockery of its own case.
DOJ claims more than 1,200 city pairs will be adversely affected by the merger, with most of these being connections since the non-stop overlapping routes number only about a dozen.
But lots of the city pairs cited by DOJ are pretty obscure. Just to pick a dozen examples:
| DOJ Examples of Connecting Routes | |
| 1 | Austin, TX-Palm Springs, CA* |
| 2 | El Paso, TX-Kahului, HI |
| 3 | Columbus, OH-Fresno, CA |
| 4 | Des Moines, IA-Kahului, HI |
| 5 | Kapaa, HI-Tucson, AZ |
| 6 | Albuquerque, NM-Salinas, CA |
| 7 | Albuquerque, NM-Kapaa, HI |
| 8 | Charlotte, NC-Grand Junction, CO |
| 9 | Charlotte, NC-Durango, CO |
| 10 | El Paso, TX-Salinas, CA |
| 11 | Charlotte, NC-El Paso, TX |
| 12 | Harrisburg, PA-Fayetteville, AR |
Some of the cities listed in the DOJ complaint (like Salinas, CA) aren’t truly served by airlines but rather by nearby airports (in this case, Monterey (CA). In another, Palm Springs (CA) is actually shown in the complaint being served by Riverside (CA). DOJ seems obsessed with city pairs involving Kapaa (HI) and El Paso (TX). Figuratively speaking, the three people per year flying between some of the city pairs cited by DOJ are really going to drive the market (queue the sarcasm).
DOJ appears to be really stretching in its attempt to make an anti-trust case.
DOJ’s lawsuit is replete with uninformed and ill-informed assertions that in aggregate make it clear the department simply doesn’t understand the dynamics of the airline industry.
DOJ “a day late and a dollar short” on merger concerns
The US Department of Justice’s lawsuit to block the merger of American Airlines and US Airways displays a concern that comes a little late.
As far back as the Reagan Administration, DOJ had ample opportunity to take aggressive action to block mergers. It’s concerned now about hub concentration? The Northwest Airlines-Republic Airways merger eliminated competition at the Detroit and Minneapolis hubs, where both carriers competed. The TWA-Ozark merger eliminated Ozark’s hub at St. Louis.
The new American would control 69% of the slots at Washington Reagan National Airport, and this is a concern? Consider:
- American is the only hub carrier now at DFW Airport.
- Southwest Airlines monopolizes Dallas LUV Field and nearly so at Houston Hobby Airport and Chicago Midway.
- United Airlines dominates Houston Bush Intercontinental Airport and Newark Airport.
- Delta Airlines controls Detroit, Minneapolis and Atlanta airports with a lop-sided market share.
And so on.
There are actually few directly overlapping routes and no competitive hubs between US Airways and American.
DOJ is concerned about job losses? Even the unions support this merger.
DOJ is concerned about the effect on consumers? Welcome to the club. All the previous mergers mentioned above were detrimental to consumers, but these cleared DOJ.
If United-Continental and Delta-Northwest were OK, this merger is, too.
Odds and Ends: Evolution of the airline logo; Boeing 20 year forecast updated
Airline Logos: Mary Kirby posted this one. A bit off our usual beaten path, but we find this quite interesting. Speaking of airline logos:
We just completed a series of flights on US Airways and asked in-flight and ground personnel what they think of the merger with American Airlines. Granted, the sample was miniscule, but each was enthusiastic about the merger.
We also saw, in person, for the first time the new American paint job and tail livery. It doesn’t look any better in person than in pictures. As we’ve written before, US Airways management, which will run the merger company, is likely to hold an employee contest for a combined companies livery. They did this for US Airways, which proved popular for morale (though personally we were lukewarm to the outcome).
Boeing ups 20 year forecast: The 2013-2032 outlook has been released. Numbers are up slightly. Airbus releases its update in September. Interesting point: The 407 seat 777-9X is placed in the 300-400 seat sector by Boeing rather than the Very Large Aircraft (which begins at 401 seats), reports Reuters on Twitter.
A350 Photos: Nothing new in the story but the photos are pretty cool.
Odds and Ends: Change fees; Two ex-NTSB members rap Boeing, FAA, current NTSB
About those change fees: Last week we reported from the US Airways Media Day and among the topics was that of change fees. US Airways matched United Airlines to charge $200 if you change your ticket. Here’s an article about how to deal with these fees.
Here’s another article about change fees, and how they’ve soared in recent times. If you think fees in the US are bad, look at the table and note in particular Ryanair’s fees–this carrier is notorious for charge for everything, and at steep prices, something subject to this funny video:
[youtube http://www.youtube.com/watch?v=ZAg0lUYHHFc&w=560&h=315]
Why are fees becoming so prevalent? Because this is where airlines are largely making their profits. US Airways said last week it expects to earn $600m from fees this year. This is more than its entire profit from 2012. This means airline operations lose money and profits come from the fees.
Also on US Airways: we also reported last week about some outstanding labor issues between the IAM at US Air and the TWU and American Airlines. An agreement over the weekend was reached about merging these two workforces under one union banner, according to Terry Maxon at the Dallas Morning News.
Ex-Members Rap FAA, NTSB: We bet they won’t be invited to a reunion. James Hall and John Goglia, former members of the National Transportation Safety Board, had harsh words to say about the FAA, Boeing and the NTSB over the certification of the Boeing 787 and the subsequent fix. Hall said the FAA needed to recertify the airplane, not just the battery.
Ethiopian Airlines resumed service with the 787 over the weekend, while Japan’s ANA engaged in a proving flight. This Wall Street Journal article (via Google News, so everyone should be able to read it) references additional measures required by Japan.
US Airways Execs talk to us about fleet plans, change fees and the AA livery
We had the opportunity to sit down for a one-on-two interview with Scott Kirby, President of US Airways, and Derek Kerr, EVP and CFO, during the annual media day. We covered labor, fleet planning, change fees and the new American Airlines livery.
When we talked right after the merger was announced, you indicated that all the labor problems at US Airways were solved and you had agreements with American’s labor groups. Yet I read about continuing labor issues. Bring me up to date about this.
Derek Kerr: I think what we’re talking about is we have a road to solve all the labor problems. The contracts have a methodology for the pilots and flight attendants for who we’re going to get there. The only thing we have right now is our ramp and mechanics. We don’t have a deal with our ramp and mechanics and we’re negotiating that today. That is in normal negotiations. We’re going through with a mediator. That really is the only area where we are working on from a stand-alone perspective to try and get a deal done with our group. It’s a little complicated because we are trying to work the two groups (TWU represents American Airlines, IAM represents US Airways-Editor.) From the standpoint of where we are today, we have to road to get the pilots done. We have the road to get the flight attendants done. We have the ramp and mechanics on [the American] side complete. We have a six year deal. We’re trying to get our group together with that.
American is taking about 65 A319ceos. US Airways has a large fleet. You indicated when we talked right after the merger was announced that you expected to use some of US Airways’ 319s on American routes, but at that time it was too soon to draw any conclusions about the integrated fleet plan. What is your thinking today?
US Airways Media Day-Part 3
Bev Goulet, SVP and Chief Integration Officer, American Airlines
Robert Isom, EVP-Chief Operations Officer, US Airways
Elise Eberwein, EVP People, Communications and Public Affairs
BG:
- Merger benefits flow to shareholders and stakeholders, employees, customers, and communities.
- This will be subject to a lot of scrutiny. Delta-Northwest, Continental-United, Southwest-AirTran all had skepticism.
- We’re taking a different path.
RI
- You go through a period of time where the public sees intense integration. People forget everyone has issues with reservations integration.
- Mergers are difficult, but we can’t take a break. We operate through the merger.
- Customers won’t threat us as one airline until we act, look and feel like one airline.
- Media will never let us live it down if we screw up.
- 110,000 employees have to be motivated. Enough people to fill Michigan stadium.
- 6,700 flights serving 41% of world’s population.
- AA-US will have more than 1,500 aircraft, more than Airbus and Boeing combined delivered in 2012.
USAirways Media Day-Part 2
Robert Isom, EVP-COO
- 2012 had more zero flight cancellation days than the prior seven years combined.
- Best operational performance metrics since the US-HP merger.
- 2012 topped on-time performance of legacy carriers (Hawaiian tends to be better-Editor).
- US Airways ranked #2 in 2011-2012 after Delta is four key metrics. Was last in 2007.
- The more compliant you are with safety will translate to reliability, efficiency, service. It serves all your goals.
- The distinguishing factor is what happens when things don’t go right.
- We want to build on momentum from record-setting 2012.
Andrew Nocella, SVP Marketing and Planning
- Phoenix equals 24% of flying; Charlotte 36%; Philadelphia 34%; Washington DC 6%; other 1%. Dramatic change from 2006 when core flying was 83%; now it is 99%.
- Now have 243 slots in Washington DC, from 193 from pre-Delta transaction.
- London Gatwick may be a great airport but London Heathrow is a more profitable airport. Began CHL-LHR March 30 with A330-300.
- 16 A321s coming into fleet this year to replace and up-gauge the airline in 2014/15. 767s start leaving the fleet this year.
- Contracts for 159 USAirways Express aircraft up for renewal, or 2/3rd of US regional fleet. Too small to be profitable now.
US Airways Media Day-Part 1
We’re at the US Airways Media Day and we’ll provide updates throughout the day.
First up is Doug Parker, CEO of US Airways and the new CEO of American Airlines when the merger is consummated.
Doug Parker:
- This media day is a little bitter-sweet. It’s the last one we will do here in Phoenix. (This is #13.)
- We’ve talked about consolidation over time, how US didn’t have to participate but would be better if it did. We talked about what the industry needed to do to be better. We talked about a lack of focus on labor, which was dysfunctional, a lack of discipline. The industry was improving on all fronts. Today the industry is much better with the exception of government policy.
- In 2010 I talked about the lack of profitability with oil a problem.
- In 2011 talking about how the recovery was real, in good and bad. Oil prices was as high as in 2008. US made over $100m, a $1bn turnaround from 2008.
- In 2012 we talked about how we were in a position to make a choice for a merger, not because we had to.