Just about everyone under the sun has offered an opinion on American Airlines’ top level explanation of how they intend to enhance revenue in their bankruptcy restructuring.  The Cranky Flier has an interesting take on things as a function of what American offers in terms of a network.  Jamie Baker of J.P. Morgan has critcized the ideas roundly.  Even I offered extreme scepticism on the subject.

American’s idea is that through codeshares and a far higher percentage of flying being contracted out, they’ll gain more revenue. 

Codeshares aren’t a network.  They can add some incremental revenue but they are no substitute for having a strong network.  American’s network was pretty good until about 5 years ago.  Coincidentally, that’s when their profits nosedived.   American Airlines has their “cornerstone” strategy of sending traffic through Los Angeles, Chicago, DFW, New York or Miami.  Sadly, that leaves some gaps that other airlines don’t have.  (And this is the foundation of the Cranky Flier analysis.)

For instance, Miami doesn’t serve the Southeast.  It’s a gateway city for South America but it doesn’t act as a hub for the Southeast.  Not like Atlanta or Charlotte do.  There was a time when American tried using Raleigh, NC for this and it wasn’t a bad choice all in all but I would have contended that fighting US Airways for Charlotte would have been better. 

Los Angeles doesn’t serve the West Coast.  Again, it’s a gateway city for trans-Pacific flights but it isn’t a West Coast hub.  Phoenix is a hub and Salt Lake City is a hub and even Denver is a hub but Los Angeles isn’t a hub.  Now we have 2 significant portions of the United States being underserved by American in comparison to both United and Delta.

I even question the strength of New York City for a network.  Again, New York city is primarily a gateway and a final destination.  It’s not the best place to connect traffic to other domestic destinations.   Now we have weakness number 3 in the equation.  Codeshares won’t make up those deficits in those regions. 

Contracting flying isn’t going to provide more opportunities to connect people from those underserved areas either.  Whether the aircraft is 50 seats or 80 seats, no one in the Southeast is going to perceive the benefits of flying from, say, Birmingham, Alabama to DFW or Chicago to connect to a flight to New York City.  Nor are they going to be thrilled about Miami as a connecting point.  Now, Atlanta or Charlotte or Memphis doesn’t look too bad but American doesn’t have hubs in those cities.  Delta does.  US Airways does.  Even Southwest does. 

How did Southwest recognize the need for Atlanta in its system for serving the Southeast and American hasn’t yet seen a need for a true Southeast hub?

If you rely upon hubs and networks, you have to recognize that they come with some real inefficiencies.  Those inefficiencies can make connecting flights look very, very unattractive unless they lie more or less directly in the path of getting from Point A to Point B via Hub C.  

Will American merge to gain a better network?  Well, I think the current management will not seriously consider those options.  They see American as an airline great that should be the consumer, not the consumed.  On the other hand, I think American’s creditors are already frustrated with American’s ideas in bankruptcy and they may well force a change in thinking on that end. 

Who will it be?  There is only one decent choice: US Airways.  I like them for both their management team and their core strengths in the network just as Cranky Flier does.  However, the only way that merger succeeds is if US Airways is the consumer of AA and not the other way around and not through a “merger of equals”.  

Delta isn’t going to be the merger partner.  Too many regulatory issues exist in that marriage for it to be practical.  United isn’t going to be the merger partner because, again, too many regulatory issues exist.  A smaller airline can’t consume American and American has a terrible track record in buying small airlines and truly getting the value they present.  The only airline who has the gumption, team and, potentially, the money is US Airways.

My one issue w/ that merger is the huge labor issues that will exist.  There needs to be a plan in place to resolve both AA and US Airways labor conflicts that exist today.

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