There is a report floating around that CEO Tom Horton was actually the first one to suggest a US Airways / AA merger and that he made the pitch to US Airways CEO Doug Parker last September.   It’s entirely possible that a union was discussed in September between Parker and Horton.  I will suggest that US Airways has been aggressively evaluating merger partners and options for industry consolidation since 2006.  You can bet that AA has always been a part of those discussions.  I will point out that even US Airways didn’t really find the AA option that attractive but did find both the United and Continental options very attractive as well as the opportunity to buy Delta out of bankruptcy.   In short:  I guarantee you that US Airways knows much more about mergers and has done real homework on the subject of American Airlines.  The same is not true from the perspective of AA and Tom Horton.

AA has announced new aircraft and seating for transcontinental flights.  It will use its A321 aircraft order to replace existing (and very old) 767-200 aircraft on these flights.  Curiously, AA is promising things like seat back video and lie flat seating for business and first class.  It’s also notable that all the other airlines have not gone that far in their product and have not seen revenue consequences for that decision.  I have a feeling that this AA on a PR campaign which will see *some* of these options realized.  Also notable is that these domestic trans-con 767 have about 168 seats and the new A321 aircraft will have 102 seats.  That’s a drastic reduction in capacity for routes that are robust earners for all classes of seating.  Either AA will boost frequencies which is somewhat challenging given that some of those trans-continental flights depend on slots at restricted East Coast airports or AA is hoping that just serving business and first class customers will result in a better revenue and profit yield.  This is what people are referring to when they say that AA has as much of a revenue problem as a cost problem.   The scenario of great reduce capacity on these routes doesn’t coincide with how  the industry is executing on those same routes and earning money.

Finally, US Airways gets to crow about record quarterly profits.  It’s a timely endorsement of the US Airways management and I have no doubt that American Airlines executives reached into their desk drawers for their roll of Rolaids upon learning of US Airways success.

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American Airlines’ CEO Tom Horton is now playing the PR game in the media making it sound, at first glance, that AA is being responsible in its consideration of merger partners.   The big sound bite from last week is Horton declaring that American Airlines merger fate won’t be dictated by others.

Problem is, it will be dictated by others, in large part.  I have a problem with American Airlines acting as if it has complete control over its destiny today.  It ignores creditors and the financial markets entirely and, frankly, this is part of the problem AA has in general.   When analyst Jamie Baker asked Gerard Arpey if that was all he had during quarterly financial results a few years ago, it spoke volumes.  It still does today.

No case is being made for how American Airlines will conduct itself upon exit from bankruptcy.  There have been no giant changes in leadership at AA.  Yes, some leadership has been let go but that which remains is still the legacy management.  the same philosophies and practices exist today.

So why should anyone believe that AA will do better given what AA has achieved today?

I’ve admired Delta CEO Richard Anderson’s attitude since his return to the airline business which is that an airline he runs will be run with an eye to returning an appropriate profit in both good times and bad.  He’s largely succeeded in that goal.  Anderson recognized that the old models of business were done and that it was time to make change happen in ways that made financial sense as well as sense for employees.

American has been desperate to be able to point to other airlines and recognize that labor costs and productivity would rise to AA’s level in short time.  The problem is that that hasn’t happened and there is nothing pointing to that happening any time soon.  Even AA’s neighbor, Southwest, is aggressively addressing its costs in order to remain competitive while engaging in practices to grow revenue to support sustained profitability.

And when it comes to revenue growth, neither of those two airlines are doing it by grabbing market share at any price.  Both are continually evaluating all their routes and where they do not make sustainable financial sense, they’re being cut.  New opportunities are being sought over and over again and many of those new opportunities are coming at the expense of AA.

Both external and internal forces are shaping AA’s merger options as we speak.  Ignoring those forces and continually declaring that Things Will Be Better is foolhardy.  Playing a PR game that clearly indicates interests on the part of AA management reside in being the dominant merger partner to reap rewards is foolish as well.  Those who have influence, aren’t so stupid as to not notice that play.

And acting as if Alaska Airlines, JetBlue, Frontier or Virgin America are solutions to your problems is just insulting those who understand the industry.

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It is interesting to me that AMR is crowing about its reported Q2 profits of $95 million (excluding bankruptcy costs and special items).  American Airlines is #3 in revenue (behind Delta and United Airlines) presently.  Delta and United Airlines are projected to report net income in excess of $500 million.

Alaska Airlines, number 7 in revenues (and certainly in possession of a greatly inferior network and high-ish labor costs) has pulled in $105 million in net income.
US Airways, #5 in revenues, should be reporting about $250 million in net income.  Southwest Airlines, #4 in revenues, should also be reporting about $250 million in net income.  It’s notable that SWA also has exceptionally high labor costs (although it also has exceptional productivity from that same labor group).

I really wouldn’t go bragging about $95 million in what is arguably an excellent quarter for all airlines.  This is, if anything, a reminder that the costs aren’t the only thing at play here.  There remains a significant revenue problem that doesn’t really get entirely addressed in the Corners Strategy.

Futhermore, crowing about revenue performance gains isn’t entirely honest either as American Airlines already has the most room to make a difference.  AA has not brought itself to parity with the other legacy airlines on the revenue side of the equation, it simply has experienced revenue growth that all other legacy airlines have also experienced in the past financial quarter.  The real question is how would American Airlines done if it had parity with United, Delta and US airways.  Legacy network carriers who all operate with similar equipment, similar approaches and with the same hub advantages and disadvantages.

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Yesterday, I discussed how the pilot shortage is unfolding domestically for airlines and the growing problem it will become in the very near future.

If the problem shows up in 5 years, we are already late in addressing the problem.  It takes time for people to move through the various levels of experience needed to become an airline pilot.  You cannot make an airline pilot in a few weeks or months.

In my view, there are a few things that could be done to start mitigating the problem.

1)  Find a way to apprentice pilots into the airlines.  Pay for the training and education in return for a commitment and a living wage that sees salary growth on a slower curve.

2) Revisit this 250 hours vs 1500 hours required rule.  Raising it to 1500 hours was in response to the Colgan Buffalo accident and, in my view, an inappropriate reaction to a single event.  Lower the hours to 500 or 750.

3) Turn regional airlines into these apprentice shops and tie upgrades between the regionals and national airlines.

4) Attract new entrants with bidding and seniority systems that reward productivity.  Currently, there is no incentive to become a pilot for a legacy or SuperLegacy airline as you’re likely to sit in the same seat for 10 to 15 years in many instances.  Find ways to reward productivity because it is a win for the airline and a win for the pilot willing to work hard for his / her upgrades.

5) Find ways for pilots to make their skills and their seniority more portable to other airlines.  If airline A needs to furlough 300 737 pilots and airline B needs 100 more 737 pilots, there has to be a way to allow those needs to get met without punishing the pilots with entry level salaries again.  ALPA, you could work this out if you wanted to.  The point is to facilitate supply transferring to where there is demand.  Otherwise, pilots tend to “hang on” at existing airlines in the hopes of keeping their seniority while seeing their skills wane from lack of use.

6) Find ways to sponsor flying clubs at the high school level.  That’s where the bug for flying is best started.  The teens who learn to fly at 15 and 16 are teens you can recruit out of college when you need them.  The industry should be doing this already but doesn’t.  Flying is expensive and horribly so compared to 20 or 30 years ago.  Many who would willingly be attracted to the profession get diverted from it due to the entry costs.

Nothing here is revolutionary.  Most of it embodies steps that could be implemented in one year or less.  All of it requires the industry to acknowledge the looming problem and to be allowed to cooperate with each other to foster a better supply of new entrants when they’re needed.

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Despite a 2010 EU ruling against a merger with Aer Lingus, Ryanair is pressing forward with its bid to acquire Aer Lingus by offering a 38% premium for outstanding shares with an acceptance date of September 13.   This is, for all intent and purpose, a hostile takeover bid and those rarely succeed in today’s world.

Ryanair would have improved its chances by getting some plan out into the media as to how it would deal with anti-trust issues with such an acquisition.  It hasn’t and investors therefore are unlikely to view this bid as something that can happen.

One wonders just how Ryanair would operate Aer Lingus vs Ryanair.  I would speculate that if Ryanair could takeover Aer Lingus, we would see the domestic component folded into Ryanair and the international component used to establish some sort of LCC long haul carrier much like Air Asia X.  This would leave Ireland without a full service carrier and I suspect Irish politicians won’t be amused by that prospect.

Amused or not, it’s time Ireland face the music on supporting a flag carrier like Aer Lingus.  While Aer Lingus isn’t an Alitalia or Air India, it isn’t an extraordinary concern either.  I am reminded of Malev, the Hungarian carrier which folded earlier this year, when I think of Aer Lingus.   Malev crumbled under relatively small debt (compared to many carriers) and could have been saved if the government really wanted to do so.  Hungary rightfully decided to let it go and to let the marketplace replace the airline.

While I think Aer Lingus isn’t in a position to experience that today or 6 months from now, it isn’t in a position to fight a turning tide should it find its financial prospects suddenly diminished anymore.  Let’s not forget that Ireland is no longer a tiger economy and will be experiencing recessionary times for a while and stagnant growth at best.

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US Airways announced that they had bought a small amount of American Airlines holding company AMR’s debt.  They purchased $1 million in debt for $600,000.  This enables US Airways to have status as a creditor of AMR in court and, potentially, gain more insight into AA’s bankruptcy strategy.

It gives US Airways a seat at the table in a more formal sense and is enough to be taken seriously without being so much as to alarm the markets.

But AMR couldn’t resist speaking out against it.  American Airline’s spokesman told the Dallas Morning News that it was a publicity stunt and nothing more.  I would suggest that American Airlines play that publicity game very, very carefully.  Ridiculing a suitor and the only viable suitor for a merger and while you are under bankruptcy protection with creditors who already aren’t sure you’re acting in their interests or your own, seems foolish.

Acting snide can have the effect of making the financial markets and creditors think you’re behaving above your position in this bankruptcy.  While it is a company who is in bankruptcy and it is other companies who are the creditors (with the exception of large labor groups), the people participating in this process are all human beings.  Human beings are capable of being offended or annoyed and those human beings control the destiny of American Airlines in large part.

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It is being reported that American Airlines is now considering 5 merger partners and they are US Airways Group Inc., JetBlue Airways Corp, Alaska Air Group, Republic Airways’ Frontier Airlines, and Virgin America.   There  are interesting choices here but at the same time one can see a less than enthusiastic theme here.

Alaska Airlines is a great airline and has a great operation on the West Coast of the United States.  That said, be 100% sure that Delta isn’t about to let Alaska Airlines get away without a fight.  I would rate this opportunity rather low.

JetBlue is another interesting option in that it would bolster American Airlines in its cornerstone market strategy as it applies to New York City with its operations centered on JFK.  I think that JetBlue is rather stagnant and while it offers market share, there is nothing else here to be gained and given AA’s history of buying airlines and then not knowing exactly what to do with them. . . this merger could happen but it adds little value to AA overall and certainly doesn’t bring American Airlines back into United and Delta’s scale.  All it does is leave existing AA management in control of AA.

Frontier and/or Virgin America?  No value added here.  There is no great complementary system found here, the management of either airline isn’t doing very well and the most that happens is that AA eliminates a tiny bit of competition on some profitable mainline routes.   These are red herrings in my opinion and I think there is very little probability of a real merger with either of these airlines.

US Airways:  Enough said already.  There are complementary systems, there are good executives who know how to make money and there is enough scale to compete effectively with United and Delta.   It’s interesting to me that US Airways’ Doug Parker says that he still hasn’t been contacted by anyone with American Airlines.  This is the least attractive merger path for AA executives and, yet, the one that makes the most sense.

I think the intent in leaking these potential merger partners to the press is to appear to be doing something about examining all options while focusing all the real effort and work on a stand-alone emergence from bankruptcy.  While that gives people like Tom Horton a chance to realize extremely beneficial financial rewards and an opportunity to keep their jobs, I’m not sure that it means that US Airways can’t be the dominant merger partner.

AA is almost certainly going to emerge with a higher market capitalization than US Airways presently has.  However, that doesn’t mean that they have very much maneuvering room against US Airways who has been building cash holdings and operating their business both profitably and sensibly.  AA’s current cash holdings are almost certainly going to be reduced in this bankruptcy and will be needed to finance both operations as well as aircraft purchases.   Furthermore, creditors and shareholders aren’t likely to be amused at the notion of using those cash holdings for a purchase of US Airways.

I would like to see a conversation about AA’s ability to be a dominant merger partner today.  This is an airline that has essentially dismantled every purchase and just made it go away.  Reno Air, TWA and Air California all were airlines purchased by American and removed from the competitive landscape without adding any real value from the purchase with the exception of some aircraft.  They were, for all intent and purpose, minor asset purchases.

Is that what creditors and shareholders want to see out of the next merger?  My guess is that won’t fly with anyone.

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American Airlines CEO Tom Horton says the company is ready to explore merger options with all suitors now that the picture of AA’s health is more clear going forward.  Likely part of this is driven by the half steps it’s gained in negotiations with the unions and its greater certainty of what court rulings might be.

I’ve pondered this development and announcement since yesterday and wonder if Tom Horton isn’t going to make a play for a merger with US Airways that sees AA as the dominant carrier going forward.  The best defense is a good offense comes to mind.

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After 5 years and, admittedly, some extremely tough times for airlines in the United States, Virgin America still hasn’t earned a profit.  To the contrary, they seem to be walking backwards in that area in some financial quarterly results.  For several years and certainly since David Cush came to be its CEO, there has been quite a bit of explaining away of these results by saying that growth is driving their losses.

People are starting to ask the question:  When are you going to slow growth and realize some profitability.  It’s not an unreasonable question.

When other airlines are managing profits and doing so with conservative or flat growth, it begs the question as to why Virgin America hasn’t slowed its growth at this point.  There comes a time when an airline needs to “pause” and reassess its operations and I would argue that Virgin America has reached that critical moment.  Pausing and re-evaluating routes and tightening up efficiencies is not a bad thing and it doesn’t mean the airline is stalled.

Virgin America arguably has a fantastic service product and its shown that it can capture profitable passengers on the right routes.  The problem is that it hasn’t really taken the time to ask if some of those routes aren’t better dropped in favor of others.

Furthermore, growth doesn’t always have to come from an organic process.  Looking at Frontier, one could argue that there is opportunity in a merger between the two airlines and opportunity that would have yielded synergies and profits had it been explored by now.  It wouldn’t be Virgin America consuming Frontier, it would definitely be a merger of equals but it could yield some badly needed profits.

I think we are going to see some major heat on the Virgin America team to manage their way into profitability and, more importantly, increasing their cash holdings.  They just decided to start hedging fuel and I would argue that this is a strategy that will tie up more money than necessary and one only needs to look at US Airways to realize that a hedging strategy isn’t necessary to succeed.

I continue to wish good things for this airline but the latest results point to an airline that could tumble quickly if it can’t show that it is getting its act together.

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Spirit Airlines began service at DFW about 1 year ago and really began to amp up its service at DFW just after American Airlines entered into bankruptcy.  They’ve announced the addition of 5 new cities from DFW including Baltimore and Houston in September and Oakland and Los Angeles next April.  They’ve also filed paperwork to serve Cancun from DFW.

This would bring Spirit’s service at DFW to 25 daily flights to 20 destinations in just over a year.  Not bad.

Proof that the DFW market is *not* a low fare market.  Spirit is seeing load factors close to 90%.  JetBlue and Virgin America have discovered opportunity here as well.  Delta has started flying into DFW right on top of American Airlines turf.

This isn’t just an incursion against American Airlines.  It’s an incursion on Southwest Airlines turf as well.  Both of these airlines have been fat, happy and sassy with their respective domains here in the DFW area.  Each has enjoyed a kind of monopoly on their services in and out of the DFW metroplex area.

As a resident of the area, I’m glad to see the competition and particularly glad to see Spirit’s competition.  The truth is that it is unlikely that I personally will ever fly Spirit.  I’m 6’2″ tall and a big man.  Spirit’s 29″ seat pitch isn’t exactly my idea of even a leisure flight at a low price.

I expect we will see even more competition in the area and particularly so at DFW.  DFW airport isn’t an expensive airport to fly into and with AA’s bankruptcy, I expect we’ll see some terminal consolidation over the next year freeing up more gate space for more airlines.

Competition is good.

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I am officially sick of American Airlines bankruptcy and happy to talk about another airline:  Delta Airlines.

Delta Airlines pilots have ratified a new contract that should put Delta in an excellent position to be the dominant SuperLegacy carrier in the United States.  The new contract allows Delta to shift its flying from loss-making 50 seat regional jets to larger, profit-making regional jets over the next few years.

Part of this contract is what allows Delta to take on the Boeing 717 jets from Southwest Airlines.  Those jets will be flown by Delta pilots and now doubt represent how Delta intends to provide more jobs for its union pilots.

Interesting to me is that 62% of the pilots said yes to the contract.  I suspect this is representative of the former Northwest pilots at the company who are more strident and wish to see more of the flying being done by Delta done by Delta pilots.

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Bloomberg Business Week says that American Airlines will be seeking an extension (90 days) to have an exclusive right to present a reorganization plan to the court.   This would nominally prevent US Airways from making its own proposal in late September.

It’s quite likely that this extension will be granted given what has been going on with the Section 1113 hearings in that a ruling on abrogating the union contracts has been extended to August.  The bankruptcy judge is likely to cooperate with American Airlines on this extension as it grants American the reasonable opportunity to put its plan together once it knows what its labor costs are likely to be.

Expect to see many unsecured creditors (unions in particular) object to this extension.

To a degree, this works in US Airways favor.  It allows them to make their case stronger with unsecured creditors and point to AA’s inability to get its house in order.

I think this a mistake on AA’s part as it signals that it is now reacting to US Airways instead of its own problems.  To creditors, directors on its board and others, this isn’t what you want to see in a bankruptcy.

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Pay cuts are the hot point for the American Airlines unions and particularly so for the APFA (flight attendants union).  The section 1113 hearings will move to abrogate those current contracts and unilaterally impose terms but that doesn’t mean the unions just have to unilaterally shut up and do nothing either.

American Airlines will still have a flight attendants union and will still be subject to NLRB (National Labor Relations Board) and the Railway Labor Act.  In short, it still has to negotiate a lasting contract with the union and the union still can ultimately resort to labor actions against the airline.  All the Section 1113 hearings do is potentially kick the can down the street for a few years more.

If the pay cuts are significant (and they almost certainly will be) and affect differential pay in particular, at what point do flight attendants just leave the business?  It doesn’t happen very often today because seniority drives people to hang on.  Seniority equals higher pay.  Some flight attendants out there in the world did see the writing on the wall when it came to legacy airlines and jumped ship to other airlines such as JetBlue to start fresh and build a new career at a new airline.  Some just left the industry altogether but those are few and far between in general.

But at what paycut do we see AA flight attendants seek work elsewhere?  The interesting thing to me is that when flight attendants do leave the business, they generally move on to more financially rewarding jobs, not less rewarding.   Granted, the economy today isn’t friendly to the idea of shopping for a new career.  On the other hand, people are hiring and people are getting hired and there are plenty of jobs out there that could offer as much or more financial reward and quite possibly a better quality of life.

What also may be missed in this is that there is more incentive to jump ship for the junior flight attendants than the senior flight attendants.   Retaining high paid, senior flight attendants doesn’t exactly help an airline much and that is particularly true for American Airlines.

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Ryanair has launched another takeover bid for Aer Lingus offering a 50% premium over the current share value in the marketplace.  Its previous bid was shutdown by the European Union on anti-competitive grounds.  Etihad has expressed some interest and now Turkish Airlines is pondering an acquisition as well.

Oddly enough, no major airline group seems that interested in Aer Lingus.  No other major European airline other than Ryanair seems interested.   It’s down to scrappy outsiders who want a piece of the airline.

This is because the government owns a major stake in the airline and between it and Ryanair, there is a majority control issue.  You can’t control Aer Lingus without one or the other selling their stake.  Neither of those two parties is interested in selling their stake to someone that can either A) harm the Irish government politically or B) impact the competitiveness of the Irish airline industry.   Or both (Ryanair).

I think much is made about the Irish government selling its stake and I agree that the current government is sending louder signals than most but at the end of the day, I don’t think Aer Lingus is getting sold or merged into any other airline.

I think Ryanair is interested in Aer Lingus from a long haul perspective and it provides growth in an area where Ryanair has not so far moved into.  With such an acquisition, it gains not only the equipment but the know-how needed to execute a long haul international strategy.

Politically speaking, the Irish government has much to fear when it comes to politically fallout from such a sale.  The airline is heavily unionized and those unions carry power when it comes to local politics in Ireland.  Given the size of Ireland, all politics is local.  Jobs are important in an economy that has been impacted by the Euro crisis, debt and a lack of economic growth.

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Southwest Airlines and Airtran mechanics have agreed upon a new deal and found a way to merge seniority satisfactorily. I wrote about this in February when Southwest mechanics derailed the last agreed upon deal.  At that time, how seniority would be handled within the airline in general as well as in Atlanta was the primary issue.

Getting a new deal agreed upon and accepted since then is fast work by all those involved.  I suspect that Southwest was able to alleviate some of the concerns involved with its moves into new aircraft and international flying.  SWA has likely been able to find a way to ensure that all parties maintain some parity in their seniority and their quality of life is preserved.

Not every deal has been made the first time around in union integration in this merger but every deal has been done fairly swiftly compared to most any other merger.

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Doug Parker of US Airways came to the DFW area with AA union leaders in tow to do media interviews in both Dallas and Fort Worth and make the case for a merger between US Airways and American Airlines. I have to believe that American Airlines executives would have liked to have arranged for his plane into DFW to be diverted.

So far, AA hasn’t reached any agreements with either the pilots or flight attendants. The pilots refused to send the last and best offer to its membership and we’re not surprised whatsoever. At the end of the day, even with the contracts abrogated, AA *still* has to come to terms with its unions and it’s doing a very poor job of that. Even the bankruptcy judge has pointed out that both parties will be stuck with each other.

There is a perception in these struggles that unions are always about more money. It is often portrayed as more, More, MORE on the part of airline unions and the thing is . . . it isn’t true. More money is rarely the true issue with employees.

We hear over and over again that more money doesn’t make for a more happy employee or a more productive employee. It’s quality of life that does so. The secret to Southwest’s success with its employees and productivity isn’t the high wages (although they are very high), it’s the cooperation that exists between company and unions that provides high quality of life.

Furthermore, employees really do want to see their companies succeed. Company success provides more stability than anything else for employees. So when American Airlines union leaders start talking about how they recognize that concessions will be fairly drastic no matter what the bankruptcy outcome and that their chief focus is now on company viability, don’t go thinking that is a smokescreen.

It isn’t. American’s biggest problem with its labor is not money. It’s a loss of confidence. That loss of confidence didn’t happen over night and it didn’t happen accidentally. There is little leadership at AA and that has been true since Gerard Arpey took over many years ago. AA executives are very, very good at managing certain aspects of an airline. They manage finances and fleets very well. They can apply the science in running an airline with the best of people out there.

What they haven’t been able to do is inspire employees and bring about both revolutionary and evolutionary change. They haven’t been able to get their labor to start marching together and working together to compete. That’s leadership and leadership isn’t accomplished by cutting management ranks and consolidating responsibilities. It’s about finding one Great CEO who then has to find many great managers to execute a vision and leadership.

Believe it or not, US Airways and Doug Parker do this. They do it despite big problems with their pilots and flight attendants. Despite the bickering that exists in those two labor groups alone, they still operate an airline that has improved its quality in every area and dramatically so. They get employees to cooperate and to excel at their jobs. Look at the fantastic job done in cleaning up the problems in Philadelphia, for instance.

AA unions see that and recognize what’s been lacking in their own company for a long time: leadership.

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Remember the JetBlue flight where the captain had to be locked out of his own cabin due to unstable behavior on his part? The aircraft diverted to Amarillo, the captain was hospitalized and the passengers were accommodated with another flight crew and compensated for their inconvenience. Well, a group of those passengers is now suing JetBlue because they were “in fear for their lives” during the episode.

No doubt it was a tense and even scary moment in some respects. Unpleasant at the least and inconveniencing as well.

But a lawsuit here is just silly. Fear alone and fear that lasts a short time and fear from an event that had a good and successful outcome isn’t justification for suing an airline for millions. I wouldn’t question the fear but I do strongly question just how much fear one experiences when the airplane stays in control and the misbehaving captain is corralled and controlled in fairly short time? It’s not good, it’s not ideal but let’s face the facts: It wasn’t the worst situation that could happen either. Try a landing on a short runway in rain with a 20 knot crosswind component.

Shame on the passengers for their agreeing to be a part of this lawsuit. This is acting like a child rather than adult on their part.

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The APFA and its leader, Laura Glading, are pointing at greed on the part of American Airlines CEO Tom Horton for the reason a standalone exit from bankruptcy is being pursued. I generally find the APFA to be a bit over the top and militant in their communications and they tend to follow the model of making it personal with company executives.

But even a militant organization finds a valid argument now and then. Past CEOs of airlines exiting bankruptcy have seen huge rewards from the stock they hold. Both Doug Steenland and Glenn Tilton received tens of millions of dollars. So has Delta CEO Richard Anderson. It’s a lucrative position to be in.

APFA aren’t wrong that its to the benefit of Tom Horton and his executive team to see that kind of exit. The market valuation of AA is liable to raise their rewards dramatically. It might not be “greed” but there is a huge financial incentive.

And I do think that kind of financial rewards clouds the thinking of such teams when it comes to finding an appropriate exit from bankruptcy that BENEFITS SHAREHOLDERS.

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US Airways CEO Doug Parker made a more detailed case for the US Airways / American Airlines merger they are pursuing at the annual US Airways shareholders meeting. Parker is in the position of having to denigrate the airline he wants to merge with somewhat in that he has to make a case that the stand-alone approach doesn’t bring profitability while the merger approach does.

Parker argues that the two airlines together can compete globally whereas the without US Airways, American Airlines doesn’t quite get there. The problem with that viewpoint is that he’s arguing scale at various point while also saying that US Airways doesn’t *need* a merger partner to continue its profitability. So why can’t American Airlines survive without US Airways?

The answer is that the two airlines both face long term profitability risk when facing Delta and United in the marketplace. US Airways *does* need a merger partner just as badly as American Airlines does. US Airways brings an executive team, a profitable operation and network that is complementary to American Airlines. AA brings scale to the table.

The labor issues still linger out there and while they aren’t as rosy as Parker makes them out to be for such a combined airline, they also aren’t as bad as some make them out to be as well. One thing US Airways has proven is that you can run a profitable airline with a fractured labor force. They’ve done it.

Labor unions, particularly pilots and flight attendants, have got to realize that their ability to survive is predicated on accepting new models of flying at the airlines. Preserving jobs is one mandate and that’s understandable. But all unions are going to have to accept the idea that preserving those jobs may require flying on smaller aircraft at vastly lower pay scales.

AA may do US Airways a favor in getting the labor contracts thrown out in court. If a merger goes through, a new contract could take several years to get negotiated into place while new, lower terms are imposed upon the unions which save the airlines money until that new contract is agreed upon. If the unions wants to realize salary improvements, they’ll have to cede some ground on productivity, health benefits and retirement funding. The sooner they do so, the sooner they realize real gains in overall compensation and particularly so on the US Airways side.

On a related note, the USAPA (US Airways pilots union) is now expressing moderated concern about a merger from their point of view. This isn’t surprising since AA pilots would dominate a combined airline from both a seniority and numbers perspective.

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American Airlines has announced direct, non-stop service from Miami to Asuncion, Paraguay with 4 flights per week starting in mid-November. Here is the kicker: These flights will be on AA 757 aircraft.

The distance between the two cities is just a bit over 3800 nautical miles and within the service range of the 757 but I suspect there will be a bit of planning done for non-scheduled fuel stops as a “just in case”.

While the flights are interesting and fit within the capabilities of the 757, I suspect these will not be pleasant, comfortable flights for those in economy class. It will be close to a 10 hour flight on a narrow body aircraft and American’s 757s aren’t well known for being a newer bunch of aircraft. The interiors and seating haven’t been refreshed in some time. First/Business class should be comfortable but I wouldn’t expect much from the back of the aircraft.

Filed under: Airline News, Airline Service by ajax
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