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I’ve been reading the news accounts of the merger announcement this morning and so far I haven’t seen anyone acting luke warm over this announcement.  The usual spin is going on about hubs being maintained (probably true) and jobs being preserved (probably not as true, at least with respect to jobs in corporate or support roles) and how excellent everyone is.

One item I’ve noticed:  Tom Horton seems to always refer to Doug Parker as “my good friend”.  So much that I wonder if the knife is going to sink slowly or quickly into Parker’s back.  It’s overdone.

Top Level Summary:

The Pilots:  Yea!

The Flight Attendants:  Yea! (AA at least)

Other service labor:  yea!

They expect the deal to be worth about $11 Billion and it will require regulatory approval and bankruptcy court approval.  It’s expected that it will take about 6 months to close the deal formally.

Tom Horton stays as non-executive chairman temporarily until around May 2014.  Then Doug Parker takes over and the board member count drops from 12 to 11.  AMR gets 3 board members, US Airways gets 4 board members and the balance come from creditors.

This isn’t a merger of equals.  While it is a merger, it’s a merger where the little guy swallows the big guy.  The advantage in this merger is that the little guy knows the big guy’s business and culture pretty well.

Now, with the deal made, there is a lot of work to be done not just in integration but in planning where to use the large numbers of new aircraft due in from both Airbus and Boeing.

There has been a lot of focus on this merger but curiously no one has noticed the potential effect on another Texas airline:  Southwest.  I’ll be writing more about that soon.

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US Airways and American Airlines will merge and the announcement will be made early tomorrow morning.  Doug Parker will be CEO and Tom Horton will be non-executive chairman of the board.

We like that they are merging but we don’t like Tom Horton’s presence in this because even a non-executive chairman wields influence and is able to engage in second guessing a CEO.  Doug Parker will be doing things very differently in this airline and that’s liable to create opportunities to sow dissent.

This will create the world’s largest airline but it won’t be the world’s strongest.  There is a lot of work to be done to be that airline and Delta CEO Richard Anderson is unlikely to make it easy for anyone to topple his airline.

More updates later.

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American Airlines had 14 aircraft delayed on the tarmac at DFW airport as a result of a minor snowfall in the Dallas / Fort Worth area.  9 of these flights were American Eagle flights and 5 were American Airlines flights.

No doubt American Airlines will moan and groan over this and claim the weather precluded them being able to do anything.  Sorry but when you control 3/4ths of the airport terminal capacity and it isn’t a major storm with lightning, you don’t have many excuses here.

The weather was miserable on that day.  Light to medium rain fell until around the noon hour and then snow fell for several hours following that.  The snow fall didn’t accumulate fast and certainly didn’t completely kill visibility.  Delays such as these at DFW airport on the part of American Airlines just doesn’t compute under most circumstances.  It was possible to disembark people and park aircraft.  It’s notable that Christmas Day actually isn’t even a very heavily traveled day.

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There is a story on USA Today’s website lamenting the disappearance of the Southwest Effect and using Atlanta and Southwest’s entrance into that market as an example of it not working anymore.

The Southwest Effect is the effect Southwest has had on poorly served markets when it has entered the market.  In short, Southwest stimulated a great deal of passenger traffic every time it entered a new city and this was cited all the way back in 1993.

The problem is that the airline industry is a very different beast today.  In 1993, Southwest was a one of a kind airline.  By 2000, we saw airlines such as JetBlue with enhanced service products start to take-off.  Others, such as Airtran, were performing their own Southwest maneuevers in various markets.

Starting in 2008, industry capacity started to contract and has largely done so for over 4 years now.  Legacy airlines have gone through bankrtupcy and now often enjoy labor rates that are on par with most low cost carrier labor rates.  In some cases, they’re lower.

No one has quite managed to replicate Southwest’s productivity though.  Despite exceptionally high labor rates, the airline still manages to be one of the most productive in the industry and continues to keep its customers exceptionally happy.

It’s true that Southwest has evolved.  It is no longer seeking to be the absolute lowest fare on the block.  They’ve discovered that they can grow as the airline who offers the best value on the block.  A strategy that I agree with because high value is chased by people with good incomes.

In the case of Atlanta, I think it’s silly to expect Southwest to stimulate traffic.  That has been the fortress hub of Airtran for more than a decade and if there was any traffic to be stimulated by low fares, Airtran already did so.  There is a reason why Southwest bought Airtran and it wasn’t because it wanted Boeing 717s.

Southwest is now adopting new strategies where I do think we’ll see traffic stimulated.  Those routes are to Central and South America as well as the Caribbean.  There is a reason why United (Continental) panicked over Southwest’s desire to build an international terminal in Houston:  There is both traffic to be “stolen” as well as generated with that operation in an area where legacy airlines have been enjoying exceptionally high (and profitable) fares for quite some time.

In fact, if Southwest figures out this international flying and is able to manage it with its productivity needs, I think we’ll see Southwest stimulate traffic to Mexico, Central America and Canada.  All markets that could use some good old fashioned competition from someone like Southwest.

Will they do so on Hawaii routes?  No.  In fact, I actually believe that Southwest would be better off with a code share parter on Hawaii routes than operating such routes by themselves.  There is a great deal of capacity on those routes as well as a great deal of competition.  Why not simply strike a deal with Hawaiian Airlines and move on to other areas that yield more traffic, more profit and offer more potential?  Hawaii might have been a good idea in 2005, it isn’t today.

At the end of the day, there is something important to remember about Southwest:  They aren’t in business to create cool things like the “Southwest Effect”, they are in business to earn a respectable profit.  Anything that comes from meeting that goal is secondary and its presence or absence isn’t indicative of the airline.  What should be lamented, if it ever does happen, is Southwest no longer providing a profit after 40 years.   So far, it not only hasn’t happened but there is no evidence of a trend towards it happening.

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Digging into news items more today, I have found more explanation for this desire to have Tom Horton remain as Chairman of American Airlines.

Apparently it is the American Airlines Board of Directors who are pushing for this and some even for an executive chairmanship and in the interests of “protecting” the board on the promises of revenue synergies being promised from the merger.

What’s interesting to me is that the board, largely unchanged over the last year, wasn’t pushing for this kind of conservatorship more than a year ago.

Questions I would ask are these:

1. Why is Doug Parker’s track record of return on investment at US Airways inferior to Tom Horton’s track record given the profits that Parker and his team have realized with an inferior airline network?
2. Why is it preferential to put controls on Doug Parker in this merger that we wouldn’t, for instance, put on Tom Horton himself in a stand alone exit from bankruptcy?
3. Why are AA’s interests valued so highly in this merger and US Airways interests so low?
4. As an unsecured creditor, would I not want to see the management team in charge be the people who have the best chance for success in the marketplace and who do return shareholder value since my “payback” will largely be in the form of an equity stake in the company?
5. And, if #4 is true, why would I want to constrain that with leadership that while fiscally good has ignored the revenue picture for 10 years or more?

I sense overreaching by the board and when I consider the composition of AA’s board of director’s, I think I know why.  AA’s board is dominated by financial interests who favor conservation of capital in all situations.  They are one of the most conservative boards you could find on an airline and most independent directors lack direct airline experience.

US Airways board is very different.  It is seeded with airline experience, entrepreneurial experience and is generally more diverse both in geography as well as industry.

Again, let me point out that Doug Parker is no fool.  He has an excellent education and has had excellent multi-airline experience which was founded on a long stint in finance at American Airlines itself and has since managed America West/US Airways for a 12 year tenure with great success in returning a disadvantaged airline organization to health despite severe industry economic challenges and ever increasing competition from very large SuperLegacy airlines.  that’s the guy you bet on and that’s the guy you don’t hamstring.

If Doug Parker or his team were foolish, unwise or inexperienced, they would not have achieved consistent successful results that largely outshine the rest of the industry.

And I would remind AA’s Board of Director’s that they chose to ride the Gerard Arpey horse and they chose to ride the similar legacy in Tom Horton with the results of a company entering into bankruptcy because of an inability to lead and an inability to generate increasing revenues.  The strategy was waiting for other airlines’ costs to rise and meet their own.  What makes you think your entity is so much more valuable today than it was 14 months ago?

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Terry Maxon with the Dallas Morning News is reporting on the Aviation Blog there that the solid rumour is that Tom Horton will be non-executive Chairman and Doug Parker will be CEO of a merged US Airways and American Airlines.

Since Terry rarely gets things wrong, I believe that this is the almost certain outcome.

It’s likely that I will take flak for this but I don’t like it as an idea. Tom Horton as non-executive chairman would have seemed like a good compromise last May or even last July. Not now.

Horton & Company have clung too hard to their ideas and I fear that even as non-executive Chairman, he’ll wield too much influence if only by being able to second guess Doug Parker and his team.

Let’s not forget that, according to Horton, Tom Horton was the guy to think of a merger long before Parker.

And then there is the branding fiasco and multiple superfluous announcements about change, often scheduled to take place in 2017 or later.

Sorry but I think Horton interferes and prevents success more than he helps. And the Board of Directors as well as the unsecured creditors would be wise to find another non-executive Chairman before letting this happen. Ask Gordon Bethune to do it. Ask Doug Steenland to do it. Ask someone else.

In fact, I think that finding someone else to serve as non-executive chairman could be the very best thing for this company. I really do. But Tom Horton should not be the one to serve in that role. He’s a lightening bolt for controversy among employees and a potential critic of Doug Parker as he sets off to do something very, very hard in the best of circumstances.

Let me point out that if it is about wanting to reward Horton for something, there is nothing preventing the company from awarding him stock and/or options in this deal. Nothing really. Horton will work again, too. He is a very, very talented finance guy and there are companies who need his skills.

It will be much cheaper to bribe him away from this than it will be to have him hovering over Doug Parker and trying to wait in the wings hoping Parker will fail and he can take control again. Seriously, don’t do this. It hurts the chances of the merged company and at best it doesn’t help.

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Alaska Airlines and American Airlines announced an expanded code share agreement between the two airlines on Monday.  The focus is on American Airlines putting its codes on Alaska Airlines routes from the San Francisco Bay Area and Alaska Airlines putting its codes on American Airlines routes from the Los Angeles area.

Alaska is ready to do business with anyone that it makes sense to do business with.  For them, this is about expanding options with another airlines to gain incremental benefits.

For American Airlines, this is about more than just gaining some incremental benefits.  This is about expanding a partnership with an airline on the West Coast and making the argument that the current AA leadership team is ready to work on the airlines’ revenue problems with a bankruptcy exit.

The next step for AA will be announcing an expanded code share with Jetblue in the Northeast.

Will it work?  Well, personally, I think not.  Code shares like these are what you actually make of them.  To date, American Airlines hasn’t really made much of its domestic code shares because it has always preferred to capture the all the revenue for itself in most domestic situations.  They don’t mind the incremental benefit to their foreign route network and anything that puts a passenger on a flight for a good fare is OK with them but it isn’t their focus.  Other airlines often try hard to drive sensible synergies with their code shares but American’s team just doesn’t seem to do this much.

Financial analysts aren’t fooled by these moves nor are those on the unsecured creditors committee.  What existing creditors and bondholders want is an airline that has long term viability for realizing profits that look a lot more like Delta’s.  A patchwork plan of code shares doesn’t get them there.

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AA 777 Livery

Terry Maxon at the Airline Biz Blog of the Dallas Morning News has photos of the new 777-300ER in the new livery colors introduced by American a couple of weeks ago.  It isn’t quite as jarring as that of the 737-800 we’ve already seen.  That said, I still think it’s a very ugly tail and in conflict with the logo now in use.  I still like the silver and I still think the stylized eagle implies a star more than an eagle.

Alaska Airlines

Alaska Airlines had a captain faint while in the cockpit on a flight over Oregon.  The first officer declared an emergency and landed the aircraft on a priority basis in Portland.  Another captain ferried to Portland and flew the flight the rest of the way.  The captain who fainted was an industry veteran with a current medical certificate.  He gained consciousness in the cockpit and removed himself from the cockpit to the back of the plane where he was tended to by an onboard doctor.  The only real problem here is if Michael O’Leary of Ryanair gets wind of a 737-800 being landed by a single pilot.

All Nippon Airlines

All Nippon Airlines (ANA) says that its losses due to the 787 grounding are now up to just over $15million.  Once the final effect of the grounding is known, ANA (and other airlines) will likely enter into discussions with Boeing over compensation for their losses.  No doubt Boeing will see this an opportunity to book more orders for aircraft.

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Short version:  Non-disclosure agreements keep getting extended for more talks.  Conventional wisdom has it that most issues have a solution framework and that there are perhaps one or two sticking points.

First, who owns how much of the new entity.   The word on the street has the offer amounting to 70% of the entity being owned by AA creditors and 30% being held by US Airways shareholders.   Part of me says this is a touch inequitable but it might be palatable enough for US Airways shareholders to do the deal.

Second:  Who runs the show.  Doug Parker would seem to have the inside track based on his performance at US Airways but apparently Tom Horton (and possibly others) are making an argument for Tom Horton to be Chairman and CEO or, at the least, Chairman, of the new company.  This argument is based on the fact that Horton & Company have run a large international airline before and . . . Parker & Company has not.

Financial analysts see the consensus that this is not what should happen.   The key risks there are that Tom Horton has no employee support and particularly none from unions and lacks a certain credibility with this plan to grow capacity as much as 20% in saturated markets.  I’ll go one further:  Horton and his team have never focused on the revenue side of the business.   It’s always been about managing money and assets as opposed to growing the business.

Parker & Company have a strong reputation for returning value to shareholders, managing their operations closely and responding to problems with solutions that work.  Moreover, Parker & Company haven’t exactly been managing some 20 airplane LCC carrier either.  US Airways may not be quite the size of AA but it’s no small entity.   It’s the 10th largest airline in the world by fleet size (AA is 6th).  In Revenue passenger miles, US Airways is 11th and AA is 2nd.

US Airways does fly a number of international routes.  They just don’t fly to quite as many destinations or with as much frequency.  It’s not like Doug Parker doesn’t know how to establish a route to a South American city.   His team established a route from Charlotte, NC to Rio de Janeiro, Brazil and made it work.  That’s saying something and I want to see what they can do with AA resources.

I also think that the Horton Team just might have overplayed their hand recently with these rapid fire introductions of branding, uniforms, aircraft liveries, etc.  These acts were, in my opinion, designed to help bolster their argument that they should be in charge.  Now I think they are starting to sound shrill and I think many who care (such as the unsecured creditors) aren’t impressed with this team putting the cart before the horse several times over the past 2 months.

At this point, I rate a merger probability as nearly certain.  I think that the most that will be given to Tom Horton is a non-executive Chairman role (such as Glenn Tilton) set to expire after a few years.  Maybe.  If he stops futzing around.  I think many very capable AA executives will be retained.  I think some won’t be.  The truth is that there is a rich garden of talent at AA that can be mined.  There is a reason why Virgin Atlantic hired their next CEO from AA and why Virgin America got theirs from AA too.

I think we’ll hear the merger announcement sometime between now and February 15th.  That’s a pure guess on my part based only my sense of timing and mood in this affair.

The only thing that could make me happier in that announcement would be the news that that awful livery will be stopped and redesigned immediately.

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United Airlines has posted a $620million loss for the 4th quarter and a 2012 loss of $723 million and that, my friends, isn’t trivial.  Conventional wisdom has it that this is the cost of a poor integration.  I think the integration has gone poorly and has impacted the company but I think the poor integration is an indicator of something else.

This management team isn’t working very well together.

We are at the point where United should be seeing its operations mesh together nicely and, instead, we’re seeing ever greater impacts from the merger on the bottom line.  Good, strong management working together makes this airline work better, not worse.  It’s notable that the combined operation earned $840 million in profit for 2011 when it really wasn’t integrated.   In one year, there is a direction change equivalent of 180 degrees.

This is a management problem.   Various management groups are executing the integration of their parts without regard to whether or not other parts are ready for that integration.  This is the source of their reservations integration.  It was pushed forward despite other parties not being ready so that a box could be checked on integration progress.

At some point, this becomes intolerable to external stakeholders.  In the meantime, I would hope that leadership calls a halt to integration efforts and executes a 360 degree review of each department and what its progress has been to date and what each expect to accomplish before allowing anyone to move forward any further.  In that process, I would hope that managers who are executing without coordination are replaced with managers who understand that this is a dance party that needs to work together rather than just a group of individuals seeking an ultimate payout as reward for checking the box.

Jeff Smisek described the integration being particularly tough in 2012 but also declared that things were back on track.  My problem with that is that just because you say it, doesn’t make it so.  Time will tell but, for the moment, a huge 4th quarter loss contrasted against other airlines who’ve had great years doesn’t signal that things are “back on track.”

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American Airlines has inked a deal with Republic Airways to flying under the American Eagle brand.  Republic will operate 53 Embraer E-175 jets with 12 first class seats and 64 coach seats.  The contract will last 12 years from the time the aircraft are put into service and the full complement won’t be in service until 2015.

If I were American Eagle or an employee of American Eagle, this would worry me.

It’s clear that no matter who runs AA in the future, contracting out American Eagle services will only increase, not decrease.  In addition, it will likely go to regional airlines that either have the equipment today or the orders for the equipment already in place.

American Eagle has neither.  It’s fleet is primarily comprised of the ERJ-135/140/145 aircraft although they do have 47 Bombardier CRJ-700 aircraft.  If the team at American Eagle wasn’t getting ready for a new world order, they should be doing so as of this morning.

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While reporting and commenting on both 4th Qtr and 2012 earnings, US Airways CEO Doug Parker emphatically stated that they (US Airways) had nothing to say about a merger with American Airlines at this time since they continue to operate under a non-disclosure agreement.  All of this is right and proper and I must say that I have been impressed that all parties seem to be honoring this pretty well with the exception of AA CEO Tom Horton who continues to say a lot without saying it by making passive-aggressive comments at each public event.

But Doug Parker and his team haven’t had to say much vocally because their performance, once again, continues to make the argument for them.

$37 million profit in the 4th Qtr despite Hurricane Sandy impacts and this contrasts with Delta announcing just $7 million.  Revenue growth of 3.9 percent in 4Q as well.

A 2012 profit of $637 million on record profits of $13.8 billion.  Again, this contrasts with a profit of $71 million for 2011.

These guys are killing it and they know it and this has to be getting the attention of creditors and other bankruptcy stakeholders.

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I think it kind of got missed that the CWA union election for passenger service agents did not succeed for the union.  About 6000 agents voted (out of approximately 7800 agents total) and the election did not pass by about 150 votes.

Did AA win?  Actually, I think not.  These kinds of elections are very difficult for unions and unions have to show real value to people who need every bit of their paycheck to live on.

If the US Airways merger does happen, expect another election potentially.  US Airways passenger service agents are represented jointly by two unions:  The CWA and Teamsters.

This issue isn’t over, the first couple of chapters in this story have merely been completed so far.

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With the temporary grounding of the 787 and the program review kicking off on the design and certification of this airliner, there is more and more fear of it.  I agree that the battery failure looks horrific.  Some (Christine Negroni is sounding particularly shrill to me.) are derailing into what, to me, seems like hysteria, over the battery failure in Boston.

The battery issue in Japan was not a fire.  It was found to be “swollen” and that it had leaked electrolyte.  An important issue but not a fire.

Facts are important in this situation and there is one hell of a lot of speculation going on.  So let me join in:

I find it very curious that these problems have cropped up suddenly and, so far, on one airline’s aircraft.  I keep wondering if there is something being done incorrectly in the operation of the airliner to cause this problem.  I would have expected more failures to occur at this point than what has occurred it was a fundamental flaw in the design.

It’s possible the quality assurance for the battery manufacturing is not very good.  It’s possible that the battery design itself is flawed.  It’s possible that the pilots are operating the aircraft in a manner that is overheating these batteries because of an unanticipated design issue. It could be a battery protection circuit issue or a design flaw in that circuit.

We’ll get the answers.  The problem will be solved in one way or another.

I even think the comparisons to the DC-10 and AA Flight 191 are a bit amusing in one respect:  Flight 191 happened because someone was performing an unapproved procedure to maintain an engine.  In other words, the aircraft was being handled incorrectly during maintenance.

But to run around shrieking “Danger! Danger!” is really kind of foolish.  Wait for facts, then make judgements.

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There have been a series of events with respect to the Boeing 787 over the past several days culminating in the FAA announcing that it would do a priority review of the 787’s design and manufacture.  This has people asking if the 787 is dangerous and I wanted to address what I think is already incorrect information being disseminated out there.

First and foremost:  I would fly the 787 tomorrow.  With regards to safety, I believe this airliner is as safe as any other relatively new airliner.

Fuel leaks have been found as a result of incorrect manufacturing installations.  That isn’t a design problem, it’s a manufacturing problem.  And manufacturing problems arise in new airliners.

Engine problems in the GEnX engines used for the 787 have been found in a few of the airliners.  These appear to be truthfully isolated in nature and appear to be getting addressed by GE.  That said, I’ll also concede that there hasn’t been as much visibility on this engine as one would ordinarily like to see if you watch this industry.  In fact, these engine problems have typically been described as a problem on the Boeing 787.  They’re not.  They are a problem for the GE GEnX engine.

The battery fire in Boston is alarming and needs quick and sure investigation.  So little is known here that it, alone, shouldn’t prompt a design review.  It should, however, prompt a quick and sure investigation and it has.

I’ve seen reports of windshield cracking from Japan being cited as a problem cropping up with this newly designed aircraft.  That would be incorrect.  Windshield cracking happens frequently and particularly so in the wintertime.  Temperatures get unbelievably cold on the outside of the aircraft while temps in the cockpits are a comfortable 70 degrees.  There can be as much as a 120 degree temperature differential between the outside of an aircraft and the inside.  Windows, even the best ones, periodically crack because of these temperature stresses.  That’s why cockpit windows are heated:  It prevents cracking.

There have been the odd mechanical issues showing up on the 787.  This is extremely normal and nothing approaching the boundary of “normal” for a newly introduced airliner.  It takes operational time to weed these things out, put fixes in and raise the reliability to the measure its expected to meet.

The best contrast I could offer today is this:  I believe the 787 is a safer airliner than the old MD-80s being flown by many airlines today.  It has the best of the best in technologies and an aircraft company behind it with a safety record that is second to none.   If I just took the number of engine shutdowns, rejected takeoffs, engine mechanical issues causing returns to airports for American Airlines MD-80 fleet, I could create a media scare that would dwarf the 787 perceived issues.

The Airbus A380 went through some very similar times in its first few years as well.  We in the United States didn’t notice them much at all because the A380 wasn’t being flown in the US (and still isn’t) and the safety issues weren’t cropping up in our newspapers and on our TV news shows.

So take these reports with a large grain of salt.

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American Airlines’ board of directors met on Wednesday but don’t expect a merger announcement quite yet.  I think there will be a merger.  Frankly, I think there is a very high chance of a merger.  But I also think that the details of the deal still have to be worked out to everyone’s satisfaction.  Tom Horton will be arguing that shareholders will get more value with a standalone exit (I’m not sure I agree here if one considers what is likely to happen with a mediocre operation over the 3 years following bankruptcy exit).  I think a better guess for an announcement will be around late January.

Delta Airlines is set to acquire regional airline Pinnacle as it is already providing its Debtor In Possession financing.  Pinnacle entered bankruptcy and Delta needed that airline to stay afloat and operating.  Whether the airline is integrated into Delta and Delta managed, I can’t say for now.  I suspect that Delta will become the majority owner and seek to install an executive to finish making Pinnacle a viable entity.  At that point, I would expect Delta to spin off Pinnacle again.

US Airways is setting new records (again) for revenue and passengers.  While they expect a $35 million hit against 4Q earnings because of Hurricane Sandy, I would expect that their earnings report for December to, once again, shock and delight investment analysts.  This is where US Airways is making its best argument for a merger with American Airlines:  Investment analysts, shareholders, etc all want this management team in charge of American Airlines because it performs and does so under the worst of network circumstances.

Delta Airlines opened up 300 flight attendant positions and got 22,000 applications for the positions.  That’s about 73.5 people per job applying.  (Take note flight attendant unions:  People want those jobs and readily accept the entry level conditions.)

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It’s been announced that American Airlines Senior Vice President Craig S. Kreeger will become Virgin Atlantic’s new Chief Executive Officer (current VA CEO Steve Ridgeway is retiring).  Kreeger is British and came to American Airlines by rising through the ranks in London, then Europe and then here in the United States.

The appointment to Virgin Atlantic is in keeping with owner Richard Branson’s emphasis on service as Kreeger has had customer service responsibilities at American Airlines through most of his career.

Curiously, two of the Virgins, Virgin Atlantic and Virgin America, will now be run by American Airlines alumni.  Virgin America is run by former AA CFO David Cush.

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Virgin America is going to be flying into Newark Liberty International Airport in the near future with flights from Los Angeles and San Francisco.  It’s a destination that Virgin America has coveted for some time but which has been unable to get into due to slot restrictions at the airport.

The real surprise, to me, is who they’re getting the slots from:  American Airlines

American, through its bankruptcy proceedings, is terminating existing leases of its slots to both United and Porter Airlines and making those slots available (plus additional slots direct from AA) to Virgin America for the exact same price.

Given just how much Virgin America has attacked American Airlines on certain routes, I’m rather surprised at this development.  This development potentially puts pressure on American Airlines on transcontinental routes between NYC and SFO/LAX.  American doesn’t have dominance at Newark and certainly isn’t the dominant airline in NYC at this time.

The dominant airline at Newark is United Airlines and certainly so for that route between those airports.   Between SFO and JFK, both Delta and United have more dominant positions but AA is certainly not a minor player either.  Between LAX and JFK, American Airlines is the dominant carrier but only barely so with Delta and United also being major players.

So I can make a few interpretations here.

First, American sees United as the competitor to fight with on these routes and wishes to make trouble for United in the form of Virgin America.  Why AA doesn’t wish to add frequencies into and out of Newark, I do not know.  There are several trunk routes that presumably would fit neatly into AA’s system for that airport.

Second, American has traditionally viewed even upstarts like Virgin America as a threat and gone to great lengths to price them out of markets.  AA has most recently done this when Virgin America entered the DFW market with flights from LAX and SFO.  So perhaps American views Virgin America as insignificant competition when compared to the SuperLegacy landscape.   Personally, I wouldn’t be quite ready to write off Virgin America when you give them access to an airport in the NYC area that plays very well into their strengths.

Third, I now wonder if American (primarily CEO Tom Horton) is starting to eye Virgin America as an acquisition.  This isn’t quite as far fetched as it might seem.  Virgin does have some valuable landing slots (although many are currently leased) into slot constrained airports.  Virgin is also run by a former American Airlines CFO, David Cush.  And Virgin has the equipment that American has decided to adopt for its future:  The Airbus A320 and A320NEO.

Virgin America has done poorly and even I think it’s time for Virgin to seek a partner.  Their value isn’t much at this point given that they’ve never earned a profit and their position has worsened in the last year.  An acquisition of Virgin America would essentially be an asset purchase to get their hands on aircraft faster.  Virgin America has nothing in terms of infrastructure, IT, leadership or service product that AA wants or needs.

Right now, I think that AA wants Virgin America alive to provide competition to the airline that best represents trouble for it:  United Airlines.  That competition can hurt United in the near term and allow some breathing space for AA to gets its bearings and start competing with United again.  If I’m right, I would not be surprised if the next market we hear about Virgin entering is Chicago.  Virgin has wanted to fly into O’Hare airport for a long time as well but hasn’t been able to get decently located gate space thus far.

It could be one other thing:  This could be part of a strategy to form partnerships with Virgin America and a closer partnership with jetBlue to give both Delta and United more trouble.  Virgin America competes hard with United on the West Coast and on trans-continental routes.  It also competes heavily with Alaska Airlines on the West Coast and Alaska Airlines has been moving closer and closer to Delta.

On the East Coast, American’s partnership with jetBlue has worked out OK and expanding upon that partnership would put some pressure on both Delta and United as well.  Since this strategy benefits two of the Cornerstone markets of AA, this may well be the purpose.

For now, we’ll just have to watch this play out.  If a US Airways / AA merger isn’t consummated, I’ll be ready to bet heavily on a partnership approach to building the AA network upon bankruptcy exit.  This may well be Tom Horton’s method of not engaging in a merger where he is ousted.  He may well be ready to argue that AA can do as well or better in this approach vs a merger.

Filed under: Airline News, Mergers and Bankruptcy by ajax
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Spirit Airlines is blaming a collision between an A320 of its own and a US Airways A320 parked on a remote ramp in Ft. Lauderdale on New Year’s Eve.  Spirit says its pilots weren’t warned of the aircraft being parked there.

I have a somewhat grudging admiration for how Spirit manages its PR in these situations.  They are the teenage kid who says outrageous things and denies responsibility for problems it does cause.

But let’s take note of a few facts.  First, ATC isn’t responsible for warning taxiing aircraft of properly parked aircraft on ramps.

Second, pilots and most specifically the captain, are responsible for watching where they are taxiing their aircraft.   In this case, the Spirit aircraft didn’t back into the aircraft, it struck the tail of the US Airways aircraft as it was passing by.  It’s true that care has to be exercised when taxiing on ramps but it is the responsibility of the taxiing aircraft to pay attention to its surroundings.

Third, LiveATC.net has captured audio of another Spirit aircraft warning of tight quarters just before the collision.

Look, it’s an accident and it probably isn’t one bit funny to US Airways whose aircraft suffered significant damage.  But these things do happen and this one probably didn’t happen because the Spirit captain wasn’t paying attention.  It isn’t easy to taxi these aircraft and there is a reason why the captain is made responsible for this duty.

Blaming it on air traffic control is just silly, however.

Filed under: Airline News by ajax
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