In the airline industry, mergers are a mixed bag of successes and failures.   Continental Airlines, for instance, nearly died twice due to poorly executed mergers.  Northwest Airlines was impacted for years and years from its merger with Republic.

In more recent history, those mergers have been more successful such as US Airways (from America West and US Airways) and Delta (Delta and Northwest).  The jury remains out on Southwest and Airtran (although this is trending towards success) and US Airways and American Airlines.  Sadly, I think the trend on United is that it is failing as a merger.

Delta is the rock star of airline mergers and I think there two great reasons why.

First, Delta engaged in an airline merger that built a powerhouse network.  Delta and Northwest had hubs that were truly complementary and which brought together a strong domestic network and a strong international network.

That union of networks provided genuine revenue synergies that you rarely see in a merged airline.  The networks supported each other and built upon strengths and didn’t merely see capacity reduction on common routes.

The second reason Delta hit the right pace is financial.  This airline watched its capital costs and set financial targets for performance that, for the first time, included paying for the cost of capital at an airline.  Instead of buying all new aircraft, the airline has managed its fleet carefully using aircraft that had low capital costs but which also provided near competitive fuel efficiency.

The airline also managed its revenue appropriately by focusing on doing something that my own father was a vocal advocate for:  treating each city pair and route as a business that should be profitable.  Instead of asking that a sum of routes make some kind of profit, Delta expects its routes to ultimately become profitable or to be removed from its system.

The airline is no loner focused on being the biggest airline nor the airline with the greatest frequencies.  It’s focused on being the most profitable airline and managing to that goal by ensuring what it does brings a return on investment to the company.

And who embodies this same kind of approach?

Definitely Southwest although they continue to be on my watchlist.  Before anyone says it isn’t the same Southwest Airlines from 20 years ago, let me offer this:  I wouldn’t want it to be.

Southwest does watch its routes carefully still and does work hard to ensure it’s city pairs are profitable.  However, they are clearly going more network than ever before and I do wonder if the complexity is going to overwhelm their good senses.  Time will tell.

I think the American Airlines / US Airways merger has the potential to be more profitable than Delta in time.  And I think it will have one key advantage over Delta:  Better aircraft.

Delta is walking a very fine line on its fleet ages and will be in danger of getting into trouble from a fuel spike as a result.  American will have one of the newest, most fuel efficient fleets around and that will help mitigate against fuel spikes quite a bit.

United, I think, is a growing failure and the truth is that while I think this has a great deal to do with poor management, I also struggle to find a compelling argument for merger these days.  The synergies don’t seem to be there and I don’t see the two parts adding up to a sum greater as a whole.  The jury may still be out on this merger but the jury foreman is taking final votes and it’s not looking good presently.

Filed under: Mergers and Bankruptcy by ajax
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American Airlines is going to close the flight operations center that US Airways maintained in the Pittsburgh area in favor of the larger, more robust center in Fort Worth.  It’s a sensible move on the part of American Airlines but I fully expect Pittsburgh and Pennsylvania based politicians to, once again, decry mergers and their effects.

It is a loss for the Pittsburgh area.  The center employs about 600 people and while those people will in most cases be offered jobs in Forth Worth, that doesn’t do the Pittsburgh area any good.

There will be other impacts to other areas as well.  I fully expect Phoenix to get hit pretty good, for instance.  The reality is that American Airlines (Old) had a great deal of capacity and infrastructure in place.  There is little good reason to adopt a system from US Airways in the integration because in almost every case the AA system will be more robust.  This will lead to more displacement on the US Airways side.

The area where I think AA takes a hit is in servicing the aircraft.  Operations will see US Airways people come in and re-acquaint AA employees with how to run an ontime operation.  I suspect we’ll see the care and feeding of the A320 fleet be tasked over to US Airways stations in many cases as well.  There will be an integration and it won’t be just AA taking over US routes.  But it won’t be delightful for some operations centers such as Pittsburgh.

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The flight attendant unions of American Airlines have decided to make love, not war, again.  There is a deal in place for the APFA (Association of Professional Flight Attendants) to represent the flight attendants of the merged airlines of US Airways and American Airlines.  The Association of Flight Attendants (US Airways) is leading its members to the APFA to get a new “industry leading” contract in place.

The AFA (US) gets to have some voice in their destiny in the process.

It’s great that they want to move forward and I have no doubt that working in unity would yield a better outcome than otherwise expected.

But I’m not sure these groups are really going to get along well.  It remains to be seen and I would love to hear from a US Airways flight attendant about their views on working together with the APFA and Laura Glading.

On the one hand, the APFA does very well in marshaling their membership to speak with one voice.  But they do tend to keep talking about 20 years ago and restoring things to the way they once were.

If I were in either union, I would want a union leadership that got me a good deal for today’s conditions in airlines.  And that doesn’t mean a bad deal or a concessionary deal.  It means a deal structured around how the airline industry is working today.  If I were a leader, I would make these my goals:

1. Workplace flexibility:  The ability to work my job, earn my salary at a living wage and still be able to cope with a modern set of challenges in my family.  How about flight scheduling that is a win-win for both the airline (in terms of productivity) and the flight attendant.
2. A salary rate based the hours I work rather than the size of aircraft I fly or the distance I fly.   Re-think how salaries should be paid so that the actual effort expended is in sync with the pay earned.
3. The ability to actually take charge and deliver great customer service to my passengers without fear of retribution for daring to use my mind.
4. Managers who empower rather than punish.  This is very, very important.  Give the flight attendants a chance to show what they can bring to the company and its financial performance.  They might possibly be the most important part to a turnaround.
5. A retirement plan based on a modern model (401K) designed to minimize risk to my retirement but also reward my service time.  AA has some of the best financial managers in the world, ask them to go to work at finding a way for my union to experience real growth in my retirement.

And it’s time to realize for everyone, management, all unions and all other employees are all One Team.

Live by each others efforts and die by each other efforts.  Anyone who wants to go to “us vs them” should be sidelined.  This isn’t about just making the airline successful someday.  This is about making the airline successful as fast as possible and sharing the rewards of that success among all the members of the company.  The faster a real, consistent profit is earned, the faster everyone can start sharing in that.

I would want to get to that point quickly because earning more money in 2015 is a whole lot better than earning more money in 2018.

Filed under: Airline News, Mergers and Bankruptcy by ajax
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Doug Parker, CEO of American Airlines, has instituted a rather quick vote by the employees of the newly combined airline to decide the fate of the new American Airlines livery.   All employees of the new company (AA and US Airways) get to vote on whether to keep it as it is or to go back to the previous logo on the tail.

There will be no entirely new paint job.  The fuselage and new airline logo being used on the fuselage with billboard titles will remain the same.  The only change up for vote is to retain the new tail or to revert to the old tail.

Reverting to the old tail and in combination with the new fuselage actually has some very real appeal for me and that is coming from someone who never liked the old logo that much either.  But I agree with many who are already saying that the new logo will win.  I think it will too.  I don’t think it will last very long but I think it will be retained.

But let’s see what happens and you can’t fault Parker for not addressing things head-on.  He wants a consensus and this is a good place to start with his team.

The best news, in my opinion, is that there will be some legacy liveries done to celebrate the airlines that make up this new American Airlines.  That’s a lot of airlines and it appears that it will include homage to TWA, an airline that I think got lost as  a legacy when purchased by American Airlines.

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With the US Airways / American Airlines merger done this past week, everyone is speculating on change we can expect but in the Dallas / Fort Worth area, I think we can expect change in at least 4 different areas and it’s all good for those in this metropolitan area.

1)  American Airlines will slowly return to being the on-time, service oriented airline that it once was.  Parker & Company know how to fix operational issues and get planes going where they need to go.  I also think we’ll see the benefit of code-share flights through the system to destinations that might well yield lower prices.

2)  Southwest Airlines will be unchained on October 13, 2014.  On that day, Southwest can fly where it wants to from Dallas Love Field as long as it is in the domestic 48 states.  This will not only offer us opportunities to fly non-stop to major cities in the US but it will also put some competitive pressure on American Airlines (and other airlines) on routes to and from the DFW area.

3)  Ultra Low Cost Carriers will move quickly to find their toehold at DFW.  There is a lot of low-hanging fruit to be had in this area and Spirit Airlines has figured that out.  I expect Spirit, Allegiant and Frontier to all try to get gate space and establish operations in this area.  Those ULCC airlines will put some competitive pressure on both American Airlines and Southwest Airlines who both could use it in this area.

4)  While I think United has missed a huge opportunity in the DFW area over the past 2 years, I have noticed that Delta hasn’t.  I expect Delta to work itself more and more into the DFW area and I think they will do this both at DFW and Love Field airports.  Delta has been doing very well at establishing point to point flights and encroaching on its competitors territory.  They pursue a modest push into markets with the resources that only an airline such as Delta has.

Most airlines know that there is a limited time left to encroach in this market and if you think that airlines executives aren’t worried about Doug Parker, you are only kidding yourself.  They know what Parker and his team can do with the resources that AA has and that is a big reason why many attempted to sabotage this particular merger.  Parker was never a great threat with US Airways because of the limitations it imposed on him and his team.

I said it two years ago and I’ll say it now:  As soon as American Airlines declared bankruptcy, that was the time to move hard into the DFW area.  Several airlines missed that opportunity to become entrenched (Virgin America and jetBlue) and some saw the opportunity and grabbed it solidly in their fists (Spirit and Delta).

It’s all good for those living in this area or those wanting to fly to this area.  In one year, I believe we will see much better services and air fares that remain competitive.  Don’t kid yourself, however, those air fares won’t be predatory.  They just won’t be exorbitant.  So if you’re waiting for an uber-bargain of the early 2000’s, your wait will be fruitless.

Filed under: Airline News, Airline Service, Airports, Mergers and Bankruptcy by ajax
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It’s possible that some readers may have noticed my absence.  A Great Illness took hold of me.  Then a Great Ice Storm.

So, more tomorrow but a comment or three today:

OK, so, everyone got what they asked for.  It’s often been said that you should be careful what you ask for.

I think Doug Parker is off on the right foot in setting  a leadership tone for the new American Airlines.  I think the American Airlines employees will appreciate it both for the tone as well as the respect it shows to employees.  I don’t know what the response will be from the US Airways people but I hope it’s tasteful.

Tom Horton got paid off.  That part isn’t pretty but it was necessary, I think.  Now, he’s gotten his payoff, it’s time to go.  The sooner, the better.  I’ll also now say that I think Tom Horton rose above my expectations in all of this.  Although I didn’t care for his initial comments after the merger was announced, he did settle down and, more importantly, he did work earnestly to make the merger happen.  That was significant and meaningful and he should get credit for it.

I think it was a gracious and even pleasant gesture for Bob Crandall to come out for the birth of the New Company.  Seeing photos of Crandall, Horton and Parker at the beginning of the new company made me feel like this newly merged company has a very real chance at greatness.

For debtors, this is the best outcome anyone could get from a bankruptcy.  Be thankful for it.

On the subject of the new American Airlines livery . . . I will buy Doug Parker the best Mexican dinner I can find in the Dallas area if he will just make that ugly design go away and bring something that A) is good design and B) is less expensive to paint on the over 600 new aircraft coming to AA.

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The US Bankruptcy Court has approved American Airlines’ exit from bankruptcy and merger with US Airways.

Employees of both organizations:  Take a moment and enjoy what this means.

On December 9th, a new airline is being fashioned from two old airlines of which both have a very old, very long history.

I truly hope it is both successful and model for both service and price.  I honestly do.  I hope that the employees of both groups will enjoy higher wages, better working conditions and feel generally more beautiful and handsome.

But a word of caution too:  Don’t screw it up with greediness.

<whispering> I’m talking about you flight attendants in case you didn’t realize.  </whispering>

Filed under: Mergers and Bankruptcy by ajax
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UPDATE:  The judge will be issuing a ruling sometime between close of business today and close of business Wednesday.

Original Post:

There is a private antitrust lawsuit against American Airlines and US Airways being conducted by two private attorneys who have long instituted lawsuits against airline mergers.  In a hearing today in US Bankruptcy Court, Judge Sean Lane is hearing arguments for and against a Temporary Restraining Order against a merger as well as other arguments for and against whether or not he (Judge Lane) can approve the merger.

The plaintiffs in the private lawsuit certainly have the right to ask for a TRO but they also have a right to get denied as well.  Asking for a TRO at this late date is, at the minimum going to raise many eyebrows since a TRO is generally requested for emergency situations.  This merger has been on deck for a long, long time.

Not only do I think the TRO will get denied, I think we’ll see the plaintiff attorneys get walked around the courtroom on the facts behind their contention.  The truth is that while there are “plaintiffs” these attorneys represent, this lawsuit is their lawsuit.

Furthermore, a variety of competent parties have already been engaged on the merits of this antitrust trial by virtue of what played out in the Department of Justice lawsuit most recently.  Plaintiff attorneys are going to argue that issues go unaddressed and real harm is taking place which suggests that the Federal Judge in that lawsuit didn’t pay attention (and the record reflects the exact opposite) and that the Department of Justice isn’t a competent representative for the citizens of the United States.

The TRO won’t be approved and the merger will be approved.  The plaintiff attorneys will stand in front of cameras and microphones and decry the great harm happening to everyone.  Journalists will yawn, write their stories about today and the big news will be the merger is approved and ready to be consummated.

Count on it.

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I smell a small mouse in this mix.  That mouse, hardly a rat, is Virgin America.

From the Department of Justice announcement on the settlement of the lawsuit with US Airways and American Airlines:

“Rights and interests to two airport gates and associated ground facilities at each of  Boston Logan, Chicago O’Hare, Dallas Love Field, Los Angeles International and Miami International.”

I think that someone wants Virgin America to get access at the airports it has openly spoken of.  Virgin America is a service darling in that offers a superior inflight service experience combined with an LCC pricing scheme.

I think that some or all of these cities will find Virgin America getting the use of these at a pre-arranged price.  The DoJ will come off looking like a prince for getting Virgin America, arguably the smallest of LCCs right now, a place at the table.

But the airline, American Airlines, could care less. Virgin America isn’t big enough to introduce pricing power into those markets the way a larger, more established national airline could.  It’s a deal that, if it works out that way, does nothing to impact American Airlines and which does nothing to substantially introduce competition.

My guess:

I think Virgin America will acquire the gates and facilities in Los Angeles, Miami and Chicago.  Maybe Boston as well.

Virgin America already has a proper footprint at DFW airport.  So I do wonder who might be interested in those gates at Dallas Love Field.  It would be egregiously bad to award those to Southwest although I’m sure that Southwest would love to have them.

I actually believe that Southwest is constrained from getting those gates but readers are free to correct me.

Filed under: Airline News, Mergers and Bankruptcy by ajax
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The Slot Race is about to begin.

Slot divestitures required in the settlement of the lawsuit between American Airlines / US Airways and the Department of Justice will be the laser focus of all airlines in the US.  Just two weeks ago, Southwest Airlines began publicly maneuvering to be at the front of the line for slots at both airports (NYC La Guardia and Washington DC Reagan National).  Yesterday, Delta announced it would be happy to take on the slots being given up.

jetBlue can’t be far behind nor Virgin America.

So far, I can’t identify exactly what the terms are of the settlement with respect to those slots.  I will offer an opinion on what should happen:

1)  Only airlines with a market share at those airports that represents less than 20% should be eligible to bid on those slots.  Why 20%?  There are currently 5 major national airlines in the United States and they’re becoming 4 airlines.  Falling below the 20% threshold invites new entrants and gives incumbents with a small footprint an opportunity to play in the game.

2)  Gate space at those two airports should be available consistent with the slots.  In other words, new entrants should be encouraged with the ability to get reasonable gate space.

3)  I would specifically bar Delta Airlines from competing for slots at both New York and Washington DC airports.  Delta and US Airways made their deal in a slot exchange in 2011.  That deal gave Delta 132 slots at NYC La Guardia and gave US Airways 42 slots (plus cash and a daily Brazil route authority from Charlotte) in Washington DC.  These two airlines have had their day at the buffet line.

With these assurances in place, I think we’ll see some new competition into and out of those airports.  Will it be good or ideal?  I have no idea.  Part of the outcome really depends on the eligible airlines being willing to not only acquire the slots but also being willing to use them effectively in the markets.

While it grates on me to say this, I do think that finding a way for Southwest to continue to build its presence in the New York City and Washington DC areas is a good idea.  This puts a national airline with a national network into play in those markets.

Allowing airlines such as WestJet or Spirit to operate a few pairs into and out of those cities doesn’t actually provide much competition at all.  Those airlines use and make a big profit from those slots without benefiting the consumer in the form of introducing real competition.

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After thinking about Southwest filing an amicus brief in the AA/US/DoJ lawsuit all day, it has occurred to me that Southwest plans to argue how:

1. Southwest is the pre-eminent low cost carrier in the country
2. It needs slots in Washington D.C and New York to wield such an influence in those markets
3. Only Southwest can deliver competition against these massive giants

And then to complete the bizarre moment, I would imagine that American Airlines and US Airways will then have to argue that Southwest is not a low cost carrier and doesn’t offer nearly as much competition as people think.

At which point, the judge’s head will explode, I imagine.

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The AA/US v DoJ settlement came more quickly than I expected and I am busier than usual at this time.

However, a few top level comments until I can sit down and do an analysis.

• I so far see the airlines giving up really nothing that they weren’t already prepared to give up for this deal.
• The gates they have to give up in the key airports does (potentially) remove barriers to entry for new airlines in those markets.
• Delta doesn’t surprise me in their loud, vocal expression that they would like to get those Washington D.C. slots.  (This was suggested to me by two sources as being an end game of Delta for weeks)
• I think it’s great that the Republican candidate for governor, Greg Abbott thinks this deal is a win for American Airlines.  Sadly, he didn’t originally and did very real damage as a result.  Blowing with the wind doesn’t impress me unless it’s an airliner.

More to come.

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Southwest Airlines wants to offers its unique perspective on competition in markets affecting the US Airways / American Airlines merger and particularly wants to talk about New York La Guardia and Washington DC Reagan National airports.

Surprised?

Southwest wants to offer that it doesn’t have competitive influence in those markets because it has too few slots.  This, of course, is to angle for an advantage in accessing slots at those airports that will almost certainly be given up in such a merger.

I like Southwest Airlines, I really do.  But this strikes me as a particularly craven move on their part.  The airline has not been willing to pay the market rate for such slots and it has lost opportunities to expand in those markets as a result.

Everyone senses a win coming up for these two airlines and most likely via a negotiated settlement between the Department of Justice and US Airways and American Airlines.  Now everyone wants a piece of the action.  One wonders just how many airline executives at Southwest, Delta and other airlines have been sticking their oars in to gain advantage.

Absolutely slots should be given up.  And those slots should go to high bidders.  If we’re not going to treat slots as a public commodity to be managed, then those who own them should at least get the greatest economic benefit from them.

If Southwest wants more slots, it needs to do a much better job analyzing the value and pony up the money.  It really is that simple.

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I have a friend who bought American Airlines stock at 50 cents per share. That friend asked me what on earth was going on that the stock rose to just over $10 per share.

These are strange days when an airline stock is actually worth quite a bit while in bankruptcy, on hold with a merger because of a lawsuit. Strange days indeed.

The answer is that there are settlement discussions going on with the Florida Attorney General and with the Department of Justice.

The talks with the Florida AG are to build momentum and whether or not a settlement is reached there is really immaterial.

The talks with the DoJ are serious and Attorney General Holder has come out with bluster stating that the airlines would have to sell assets to get a settlement. The airlines wisely declined to make a comment.

In the world of lawsuits, he who is quiet is usually the one who is winning.

American Airlines and US Airways are very quiet on this.

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American Airlines and US Airways have so many different parties clamoring to be their friends in court, I’m reminded of my daughter who has over 700 Facebook friends.

People writing supporting briefs doesn’t mean that American Airlines and US Airways wins by the volume of support. The law is the law is the law. And the law in this case is somewhat tightly constrained. Decisions in this case must be made on what market conditions are today, not what they were 5 years ago.

So, if it feels like the argument is won, it is not.

The win in the Department of Justice lawsuit against these two airlines comes from making an argument that centers on what today’s conditions are and, at best, supporting it with comparisons to market conditions that existed in the past.

In other words, you can’t argue that just because the DoJ didn’t file a lawsuit over the last 3 mergers, they shouldn’t now. That isn’t even an argument.

But you can argue that market conditions and competition isn’t materially different from what it was 5 years ago and when those mergers were allowed, outcomes favored more competition rather than less.

Likewise, the DoJ can’t just say “less airlines, more costs”. And arguing that air fares are up isn’t valid either. In fact, arguing that air fares are up and airlines are earning profits this year would be stupid argument. The industry will point out the tens of billions of dollars lost over the last 35 years in aggregate.

One good year does not make for a turnaround.

The DoJ must be able to prove that competition will be reduced AND as a result, the consumer will be harmed. Consumers are not harmed automatically from higher prices. In fact, over the last 5 years, since the start of the Great Recession, lots of items rose dramatically in price. Gasoline is one item that comes to mind. So did milk.

Air fares rose because airlines A) stopped trying to buy market share at any cost B) returned to operating each route as a profitable enterprise and C) consolidated to reduce costs.

A healthy, competitive airline industry that charges a higher air fare may well be in the consumer’s best interest.

Neither side has a sure win here. The airlines have more maneuvering room than the DoJ but the DoJ isn’t without some firepower and it doesn’t have as great a burden of proof as many think it does.

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Often the key to getting a deal done is finding a way for one or both parties to save some face.

The worst thing to happen in the Department of Justice lawsuit against American Airlines and US Airways is that the DoJ acted in a manner that immediately backed themselves into a corner.

Since that silly act, roughly 3/4 of the entire world has come out in support of the merger between the two airlines.  I’m pretty sure that Sri Lanka will be filing its amicus brief in support of the merger in a day or two (note:  that’s *humour* in that last line.)

A mediator has been assigned to this case and it is a way out for the DoJ.  With a mediator in place, a deal could be negotiated where the DoJ gets a token concession and is able to exit this lawsuit without appearing to have failed.

It’s failure that people fear the most in these things and lawyers have a big ego that goes against failure.  But this latest lawsuit may be one of the most unpopular acts the DoJ could have engaged in for 2013.

The mediator can help facilitate a deal but it also takes on the onus of having put a deal into place.  The DoJ can be seen as not giving in (entirely) and the airlines get their merger.

The deal that wins is that slots in Washington D.C. are given up and guarantees of service are made for a certain time period in other areas where competition is slim(er) as a result of  the merger.

My personal estimate of probability for a deal prior to the mediator being assigned was about 20%.  I would now raise it to 60%.

One item of note:  Were the DoJ to lose this lawsuit, it could lose all of the lawsuit.  Which means no slot giveups anywhere.  That’s a failure that would look very, very bad to any outside looking in at the DoJ.  There is some incentive for a deal.

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Southwest Airlines CEO made it clear during an earnings call that Southwest believes that should there be a merger between US Airways and American Airlines, that slots in both the New York City and Washington D.C. areas should be made available by the combined airline.  And Southwest wants those slots.

In the most recent give-up by US Airways at Reagan National about 2 years ago, jetBlue won the auction for those slots.  jetBlue paid $40 million for just 16 slots.

Southwest has lost several bidding wars for assets over the last several years.  Bidding wars that even today I would argue it should have won by being just a touch more aggressive.  Southwest tends to want a “deal”  much like it got with asset purchases from ATA many years ago.

Those deals don’t exist anymore.  Premiums are paid for such assets and whether we like it or not, the price of entry in those markets is very high.

So, is Southwest prepared to pay to play in those markets?  I think it will.  Southwest’s business strategy has changed over the past 2 years and has an increasing focus on winning business travel.  To do that, it needs more penetration in markets such as New York City and Washington D.C.

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US Airways 3rd Quarter results were down compared to the previous year and primarily due to expenses that are currently resulting from the anticipated merger between it and American Airlines.

If you think either airline isn’t burning a lot of cash right now due to the hold up from the DoJ lawsuit, think again.  US Airways’ one time expenses were $151 million for the 3rd quarter and while I don’t like talking about “would have beens” related to these kinds of expenses, let’s just pause and consider that a great deal of those one time expenses were related to its “hold” on the merger.

Considering that US Airways has less revenues than Southwest Airlines, the $216 million net profit for the 3rd quarter is exceptionally good and shows that that airline continues its strong record of providing profits.

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There have been a number of airline industry watchers who have private and (sometimes) publicly expressed concern that American Airlines’ case with the DoJ on the subject of competition was hurt by American’s ability to turn a profit right now.

American Airlines has indeed earned a Q3 profit and it was a respectable one.

Delta Airlines had a Billion Dollar 3rd Quarter.  $1.6 Billion to be exact.

While you digest that news, consider that Delta doesn’t have the lowest costs around this town.

So, when we consider that the airlines of size (Delta and United) and what they’re able to produce for themselves in profit, consider the size of the warchest that that gives those two airlines.

And then explain how the much smaller American Airlines and US Airways are going to fare against those behemoths.

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There is now speculation that there might be talks going on between the Department of Justice and American Airlines and US Airways to settle the lawsuit the DoJ has brought against the two airlines.

The speculation is largely born out of the fact that Texas Attorney General Abbott got a “settlement” deal with the two airlines and was made happy.

The truth is that that settlement was window dressing.  The Texas AG got nothing past what AA had already offered in many discussions.  The offer was merely put on paper and signed.

I do not think there is a deal to be made with the DoJ and I think those hoping for it are ignoring the fact that the DoJ has backed itself into an ugly corner by even filing the lawsuit.  There were other choices they could have made in August.  One would have been to enter into negotiations for what the DoJ would think necessary to improve competition.  The fact that that was’t the next step speaks loudly to the intent of the DoJ.

Lawyers are people and the leaders of these lawsuits didn’t get where they are by changing their minds.  The amount of ego that would have to be swallowed by both DoJ Attorney General Holder and the lead Deputy AG Baer would be very large.  It’s hard to imagine either man swallowing such a change and it’s hard to imagine a deal that allows either to save much face in the process.

Look for a trial starting on November 25th.  I still think the airlines win this trial and I think that will be even worse for the DoJ.  The Department of Justice is free to shock and surprise me with a deal but if one comes about, it won’t substantially change the merger between the two airlines except for in Washington DC at Reagan National airport.

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