Alaska Airlines merging with Virgin America reminds me of the AOL / Time Warner merger

May 23, 2016 on 12:48 pm | In Airline News, Airlines Alliances, Mergers and Bankruptcy | No Comments

When AOL merged with Time Warner to become an even bigger media company, a primary reaction was a dot com bubble was buying a multi-generational colossus.

But others who paid attention were quite a bit more concerned in the dissonance between the two companies in terms of leadership and culture.  In short, they were incompatible and didn’t understand each other.

I understand the desire for Alaska Airlines to buy an airline.  They are in a “eat or be eaten” world and presently look very attractive as a hors d’oeuvre for a much bigger airline.  So buying someone lets the airline continue to exist rather than become food for another.

Pardon me.  This merger is nuts.

The airline fleets are entirely at odds with each other.  The service products are entirely at odds with each other.  The networks are somewhat at odds with each other and where they aren’t . . . it doesn’t mean Alaska Airlines is going to pick up the customers from a consolidation point of view.

The company cultures are way at odds with each other.  Alaska Airlines has a multi-generational history and a very unionized, very conservative airline culture.  Virgin America is the millenial who just turned 24 and thinks they should be a vice president in their first job.

What bugs me more about this is that no one seems to be calling anyone out on this.  That alarms me.  Analysts and everyone else shouldn’t like this merger at all  It doesn’t speak to merger synergies and it doesn’t look like a merger that is easily accomplished which means it looks like one hell of an expensive merger.

In the face of incredible and record setting airline profits in the past 2 years . . . no one seems to care very much.

And that’s what scares me about this industry.  It appears to be losing its focus again.


Pittsburgh is likely to be pi$$ed

January 28, 2014 on 2:00 am | In Mergers and Bankruptcy | No Comments

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.


Yes, I noticed

December 11, 2013 on 10:24 pm | In Mergers and Bankruptcy | 10 Comments

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.

Take a moment

November 27, 2013 on 10:47 am | In Mergers and Bankruptcy | 9 Comments

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>

Temporary Restraining Order: AA/US Bankruptcy

November 25, 2013 on 11:56 am | In Mergers and Bankruptcy | 1 Comment

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.

The Settlement: Part 1

November 11, 2013 on 9:15 am | In Airline News | 2 Comments

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.

Wouldn’t you like to be Delta’s friend? Or Southwest’s?

November 8, 2013 on 1:00 am | In Airline History, Airline News, Mergers and Bankruptcy | No Comments

Southwest Airlines and Delta Airlines and others have been running around playing politics with the US Airways / American Airlines merger in ways that leave a person wondering what, exactly the agenda is.

The truth is that the airline industry has never been good at acting in its own interests.  To the contrary, the US airline industry is expert at just one thing:  shooting itself in its own foot.

And they have a tradition of doing this that stretches back 60 years or more.  This isn’t just a deregulation thing.

Airlines cannot resist interfering in things that may result in some benefit to them.  And the worst part is that they always do it in a very clumsy manner which finds them not only not getting what they wanted but losing too.

Both Southwest and Delta benefited a great deal from mergers.  Both did not have to enjoy friends such as American Airlines or US Airways interfering in the arranged marriages.  (Yes, I’m well aware of US Airways hostile bid for Delta and that is quite different.)

These airlines run the very real risk of impacting their entire industry in a way that would prohibit further consolidation and even invite investigation into divestiture by the very largest airlines.  It’s no small thing that both Delta and Southwest are a part of that club of large airlines.


Southwest wants a word with the judge

November 7, 2013 on 1:00 am | In Airline News | 2 Comments

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.


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.


Southwest wants DC and NYC slots

October 25, 2013 on 1:00 am | In Airline News, Airports | No Comments

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.

The TWU is just a hot mess

October 9, 2013 on 1:20 pm | In Airline News, Mergers and Bankruptcy | No Comments

The Transport Workers Union represents thousands of employees of American Airlines and US Airways (and several other airlines such as Southwest where they recently had an odd scene go down as well).  This union is under new management and they’re just itching to get in the way of themselves.

Most recently, the TWU filed to become a party to the lawsuit the DoJ has filed against the merger of American Airlines and US Airways.  The technical term is intervenor and it means that they want to become a part of the lawsuit as the plaintiff or defense.  In this case, they wanted to be the defense.

US Airways and American Airlines both filed objections to that stating that, in this case, the TWUs interests were fully aligned with the airlines’ and therefore didn’t need representation.  The DoJ objected as well.

The truth is that no one wanted them at the table because who needs a union coming in late to the party on an accelerated court schedule?  Who wants an airline union showing up to be involved in such a lawsuit under any terms.

No one.

So now the TWU wants to be an amicus to lawsuit so it can file it’s opinion.  This is likely to be granted as several other parties are already “interested friends of the court” in this trial.

The TWU has been under fire from other unions.  Most recently, the Teamsters attempted to grab a good portion of their membership away from US Airways and American Airlines and they barely fought them off.

It’s feeling threatened and insecure and its leadership wants to show it can play with the big boys.

The thing is, it can’t.  It can’t even keep its membership all that happy despite a very good deal negotiated for them in the merger.  The TWU is a hot mess and needs to go get its own house in order instead of interfering in issues it has little grasp of.

Just do it already

October 4, 2013 on 1:00 am | In Airline News, Mergers and Bankruptcy | No Comments

Once again, it is rumoured that KLM-Air France may be in the running to merge with Alitalia of which it already owns 25%.

Once again, Alitalia is unable to financially succeed on any level despite its own government propping it up in anyway possible.  This is an airline given every advantage in its marketplace and which still fails regularly.

Italy is already posturing itself to show what an outrage it would be for a flag carrier to be taken over by French and Dutch.  But this time those who have money in the airline have signaled that they may find Air France-KLM to be attractive enough to be worthwhile.  Curiously, it was those same people who “rescued” Alitalia from Air France-KLM’s hands.

The merger will probably happen.  It probably will result in the Italian government wringing its hands mightily and trying to extort concessions like guaranteed full employment for all the Alitalia employees for the next 10 years.  Something silly like that will be demanded.

It won’t happen.

The difference this time is that Italy is in a very precarious financial position and has a particularly weak (OK, weaker than usual) government.  It won’t be able to stand up to powerhouse participants in the EU such as France and The Netherlands.  Countries that currently provide a fair degree of solvency to Italy.

But that doesn’t stop me from wanting to plead “Dear Mother of God just complete this merger and erase Alitalia from our memories for once and all time.”

The Lawsuit: Part 43,987

October 1, 2013 on 12:39 pm | In Airline News, Mergers and Bankruptcy | 1 Comment

2nd Update:  The Judge in this lawsuit has also decided that the Department of Justice won’t get its requested stay and has to litigate the case on time.  It’s not a good day for those serving as plaintiffs in this case.


UPDATE:  Greg Abbott has announced a “settlement” in which the Great State of Texas will get what it wanted by legal agreement.

In other words:  American Airlines put in writing the promises it has already made long prior to the lawsuit nonsense.  AA will continue to serve 22 communities in Texas for at least 3 years.

The fact that the press conference was held at American Airlines facilities speaks volumes about this “settlement.”  I would imagine that AA just barely let him call it a settlement for face saving purposes.

The Dallas Morning News says:  “Abbott denied that political considerations played a part in either joining the lawsuit when it was filed Aug. 13 or deciding to withdraw now.”


What’s relevant and who have you been talking to?

September 26, 2013 on 3:52 pm | In Airline News, Mergers and Bankruptcy | No Comments

US Airways and American Airlines want to know two things from the Department of Justice.

First, they want to know the details of what the Justice Department did in evaluating four previous airline mergers in the past decade.  The DoJ doesn’t want to give up this information and says what they did in the past is not relevant.  Only the current market conditions are relevant.

It’s true that the law says that mergers must be based on the hear and now essentially.  However, how that evaluation is done is another story altogether.  The airlines will try to make the case that by changing the “how” of evaluating mergers affects they outcome.

And they would be right.  One item that has been glaring to all since this nonsense began is that the DoJ chose to evaluate airport pairs rather than city pairs and dismissed the market power of LCCs altogether in that evaluation.  I think that US and AA will (rightly) make the point that in changing how an merger was evaluated, they changed the perception of the effects and therefore the DoJs suit has no merit since it did not use accepted practices that have provided analysis for mergers for a substantial period of time.

In other words, evaluated with the methods and tools, the US/AA merger would pass scrutiny because of the market conditions that would be uncovered by these methodologies.

Second, US and AA want to know who the DOJ talked to in evaluating this merger.  The reasons here likely have to do with two things:  They want to know the source of bias in how the DoJ chose to evaluate this merger and I suspect they think that some other airline or airlines were attempting to torpedo the merger.

What’s that?  You are shocked?  Shocked that some other airline may be attempting to arrange a clumsy backdoor outcome in the airline industry?

I’ve thought about this for 3 days.  I think that US and AA are on to something here.  And I think that it is jetBlue and/or Delta who may be playing that game.  If I put money on things, I would guess that Delta likely spoke unfavorably using its recent experience in doing its deal with US Airways over New York City (La Guardia) slots.  I think that Delta used its experiences with the DoJ during that last deal to color the market dominance picture with the DoJ.

I also think that Dave Barger decided to take advantage of a moment to portray jetBlue as a poor, underfed, uncared for LCC who never has advantages over anything.  Mostly because jetBlue would love to have some dominance at Washington Reagan National.  Take note of the fact that CEO Barger recently opined that US/AA ought to be made to give up all the AA held slots at Washington Reagan National if a merger is allowed.

I do believe that Washington Reagan National should be required to be “opened up” a bit by slot givebacks by both airlines.

I also think that any airline with greater than 50% dominance at any slot controlled airport should be required to lease out or divest themselves of slots to get under that 50% control.

But, hey, I’m a radical compared to the DoJ.

There is a hint of clumsiness in how the DoJ has gone about this over and over.  And it does smell of influence.  I also expect that, by now, US and AA have been told off the record of such discussions by those closer to the DoJ investigation.  If there has been influence, we’ll find out in a short while.  The airline industry has never been known for its ability to finesse anything.

AMR and US Airways Response to DoJ lawsuit

September 11, 2013 on 1:00 am | In Airline News | No Comments

AMR and US Airways each filed their response to the Department of Justice lawsuit and you can find all manner of references to it online yourself.   The theme is what is important.

The DoJ and many anti-trust experts say that the law says a merger must be evaluated in the context of “now” rather than on the history of an industry.  In other words, while a merger between Delta and Northwest may have been “good” for consumers in 2008, that has no bearing on an American Airlines / US Airways merger in 2013.

The two airlines have indicated they feel otherwise and I’m inclined to agree because it’s those other mergers that have set the stage for the market conditions today.  Each airlines’ responses give a hint as to how they will defend themselves in court in the near future.

Both airlines make the case that the DoJ context for evaluating the merger was wrong in that by evaluating airport pairs and doing so on a connecting basis runs contrary to reality.  I agree.  In fact, time and again we have seen that the airlines with hierarchical superiority on a route (non-stop flights, one-stop flights, two-stop flights, etc) are the ones who tend to dominate on a route.  For example, on a route such as DFW to LGA (Dallas to New York City), the airlines with non-stops will carry most of the traffic whereas the airlines with just one-stops and two-stops will simply follow the prices set by the non-stop airlines.

Put another way, comparing one-stop conditions to non-stop conditions doesn’t yield a rational picture of the market.  These two airlines really want that to be the prevailing view because when it comes to where they directly compete on non-stop routes, there is a very tiny amount of overlap.  I think the airlines have a good chance of causing this to be the relevant view in this trial.  It passes the “sniff” test.

The second theme is that the airline industry spent approximately 30 years in a condition that prompted serial bankruptcies, mergers and conditions that found the airlines unable to deliver a consistent financial performance no matter who the airline was.  The question asked is why would the DoJ wish to perpetuate conditions that might financially advantage individual consumers but which is unsustainable as an industry?

They aren’t wrong.  I myself wondered if the airlines would ever be able to find some steady state in which to not only operate in but earn reliable profits in.  They have managed this admirably since 2009 or so and it has gotten a bit better.  Airlines earn profits despite a very weak economy and continuing oil shocks.  This is what we want.

And let me point out that no airline is running around and earning egregious profits at anyone’s expense even today.  Not a single one of them is ExxonMobil earning billions of dollars in profits each year.

I think that to make the argument that mergers continue to be needed to ensure a healthy industry is going to be more of a struggle.  Presumably attorneys and experts who are far above my pay grade will find a convincing way to do so.  I am skeptical not because I think it is an unworthy argument.  I am skeptical because I think it is an argument that doesn’t address anti-trust law very well.  It’s not a “consumer” argument in the eyes of most although I would argue that a healthy and competitive airline industry *is* best for the consumer even if prices are higher than they were in 2005.

Finally, they are clearly going to talk about markets in both domestic and international terms.  Here is where the arguments get very strong.  When they break down the market shares domestically, they rightly point out that the combination of these two airlines hardly ripples the market shares.  Southwest is the biggest airline domestically and has been for years.  The  merged US Airways and American Airlines won’t challenge them for dominance.

While you are chewing that over, let’s go to the international side of things and consider that not only do the airlines have to compete against each other on routes but that they also have to compete against other international airlines who, fairly frequently, enjoy lower costs than those same US airlines.

I like the domestic and international market arguments a lot because they embody clear, relatively easy to understand facts.  They are truthful and pass a lot of sniff tests.  This is where the DoJ made its biggest mistakes because it decided to “create” a picture of where the consumer was impacted that was based on carefully chosen criteria which ignored other, substantially mitigating facts.

This is where the lawsuit is won, in my opinion.  These are the facts that one should hang one’s hat on and they have the additional benefit of being very true.



Careful what you ask for l . . .

September 3, 2013 on 7:00 am | In Airline News | 2 Comments

US Airways and American Airlines have gotten what they have asked for and will be going to court quickly over their lawsuit filed by the Department of Justice to “kill” the merger.

The trial will start on November 25 and likely last about 2 weeks.  There is a massive amount of discovery that must take place between now and then.  The quick trial makes this the airlines’ trial to lose at this point.  They must have all their ducks in a row to make this work for them.

There is a key maxim to go by in trials:  He who is prepared most often wins.

Believe it or not, even when the stakes are this high people sometimes show up unprepared.

I think the merger chances went up with this trial date but let’s understand somethings here:

  1. This is a very high stakes poker game in which a settlement would be extraordinary.
  2. The government’s case is weak based on all modern historical standards by which anyone would testify.
  3. If the government loses this case, consumers are actually kind of harmed but it will have not achieved any givebacks from the airlines for Reagan National
  4. Political pressure in this case will be enormous.
  5. Factual data will rule here, not emotional arguments.

The airlines need to be very sure to show up over-prepared at this point.  This is their case to lose now and acting as if the argument in their favor is self-evident will result in the Department of Justice walking away with a win.

You cannot possibly be over-prepared for this case.

It’s time for the airlines to stop the bluster and outrage and get to work.

And will someone remind Doug Parker that the fat lady hasn’t sung yet?


Don’t ignore major players

August 30, 2013 on 1:00 am | In Mergers and Bankruptcy | No Comments

One thing that the Department of Justice attempted to ignore in its assessment of competition on routes in the US Airways / American Airlines merger was Southwest Airlines.  They also ignore other LCC carriers such as jetBlue but Southwest is specifically ignored in its complaint for its lawsuit.

Quick!  Who flies more Revenue Passenger Miles than anyone else in the domestic United States?

Southwest Airlines.

Southwest is a nationally dominant airline competing in all the large markets at this time and doing so quite well.  But the DoJ dismisses Southwest both as an airline as well as its influence on city-pair routes.  Let’s be clear:  The DoJ doesn’t just relegate SWA to a minor player.  It ignores SWA at all in its competitive analysis.

American Airlines is, for instance, presumed to have no competition in Dallas / Fort Worth.  For those of us in Dallas / Fort Worth, this comes as a complete shock.   I myself have frequently written about how Southwest is both price *and* time competitive on the Dallas-Fort Worth / Chicago run.  Notice that SWA is dominant at both Dallas Love Field and Chicago Midway airports?

Ignoring Southwest Airlines is kind of like ignoring that large 18-wheel truck in the lane next to you as you travel down a highway:  you can do it but you do so at your own risk.

Many speculate that the DoJ must have had strong reasons to define SWA and jetBlue out of the market for their analysis.  I strongly suspect that without doing so, they had no argument of strength to make against a merger.

And once you start carving up the rules so you can achieve the outcome you want, bad things happen.

Having your cake and eating it too.

August 29, 2013 on 1:00 am | In Airline News, Mergers and Bankruptcy | No Comments

As predicted, the US Department of Justice is asking/demanding/pleading for more time to prepare its case against American Airlines and US Airways.  In fact, their arguments go against precedent and seem to indicate that they may well suddenly realize that their initial arguments in their complaint are pretty weak at best.

American Airlines and US Airways want an early November court date.  The indicate they are prepared and ready to go and want a speedy trial.  They well should be in light of all the due diligence and preparation being done for a merger.

They rightly recognize that a delay could result in serious impacts.  More and more delay is simply likely to impose an outcome on the two airlines that the US DoJ wants without a trail which is to stop the merger due to untenable costs that result from being in limbo and questioned in the markets.

The US DoJ’s arguments for a March 2014 trial date are . . . not good.  We need more time because this is a big merger and, well, we need more time to stop these evil airlines.

I actually think their memo language hurts them, I really do.  Emotional arguments don’t play well with judges.

I also think that their strategy was to kill the merger with the filing of a lawsuit.  When that didn’t work and, to the contrary, resulted in a big backlash, they went to the delay tactic knowing that it would impose financial burdens that couldn’t be tolerated indefinitely.  I think their strategy is transparent, in fact.

The DoJ, in its pleading, says:

“Plaintiffs’ proposed trial-ready date of March 3, 2014, with trial starting thereafter at the Court’s convenience, would leave four months for party and non-party document discovery and fact depositions, a month for expert reports and depositions, and then a month for pretrial motions and briefs.”

The airlines’ response is that the DoJ has already enjoyed free, unfettered access to such discovery, expert reports, etc in investigating the merger in the first place.  They aren’t wrong either.  When airlines decide to merge, they lift their skirts for all at the DoJ to see.

In light of the 4 previous mergers over the past 10 years, America West/US Air, Delta/Northwest, United/Continental, Southwest/Airtran, I would argue that not only should there be a vast, significant body of research but also a vast significant body of precedent to use in a court case.

Oh, wait.  There is.  But if you use it, the DoJ loses in the first day of a trial.

That must be why more time is needed.  Creating fiction always takes more time than fact.

Will it fail?

August 24, 2013 on 1:00 am | In Airline News, Mergers and Bankruptcy | 1 Comment

Opinions about the merit of the Department of Justice lawsuit against US Airways and American Airlines and their merger are all over the road.  Some believe this is the end of the merger and most often those appear to be the opinions of people who operate outside the airline industry.

Others believe that US Airways and American Airlines have a real opportunity to win against this suit if they stay the course.

The concern in the greater world is that when the Department of Justice goes “all in” on a lawsuit like this, it typically kills a merger no matter how much companies involved protest they’ll fight this.  There is real evidence to support that.  One excellent example is the merger that was proposed between AT&T and T-Mobile.  Ironically, that merger got killed by the same Assistant Attorney General.

I do think that the intent on the part of the DoJ was to kill the merger without necessarily having to actually prove their case.  In other words, I think the DoJ believes that by filing the suit alone, they will stop the merger and achieve their goals.  It has been a successful strategy.

Furthermore, the DoJ is asking for a February trial date (or later) whereas American Airlines and US Airways are seeking an early November trial date.  This smells like the DoJ believes that if they delay this trial long enough, they’ll achieve their goals by default.

I do not think that a judge will look favorably on the government’s desire for a February trial date unless they literally cannot do it sooner by trial calendar.  I think this is underlined when the defendants in the suit signal they are ready to go to trial and do have a strategy.

There is a rule in trials that tends to say that he who is prepared best wins.  As a son of a lawyer, brother of a lawyer and with other lawyers in my family, I can say that I have noticed this to be very true.

So, I suspect that the DoJ is having a bad moment in as much as they are likely not prepared to go to trial.  I think they made a flawed analysis and I strongly suspect that not only were they not prepared for a trial, I also think that the broad commentary made upon their claims by a wide swath of subject matter experts has probably shown them that they really don’t have a strong case.

They don’t even have a strong case at Reagan National.  And if they lose this case, they may lose *all* the marbles rather than achieve some givebacks on that airport.  Why?  Because many other major airports are similarly dominated.  If the dominance that the merged airline would have at Reagan is an anti-trust problem, then the DoJ should have gone after several other airlines over their dominance at other airports.

Remember that many of the very people you would consult and have testify on this merger are the very ones who shamed the DoJ for their flawed analysis.  The DoJ is likely to find it very hard to find credible testimony in support of their action.

And both US Airways and American Airlines actually should be prepared to fight this case in November.  As a function of the due diligence they were already engaged on for the merger, they likely have all the data and facts necessary for an overprepared trial.  All they need to do is organize the data and schedule witnesses.

DoJ would probably like to spend a year doing discovery before being ready.  But they filed and publicly treated their lawsuit as “ready to go”.  It’s an ugly corner to be in.

Remember that part of the DoJ’s thoughts include the idea that each merger should be evaluated on its own criteria.  Perhaps that is what they even really think.  However, courts operate on precedent and absent a wholesale change in conditions, they tend to stick to precedent.  The Delta / Northwest, Southwest / Airtran and United / Continental mergers all provide current, relevant precedent.  Precedent is against the DoJ in this one and largely because of their previous approvals.

So, while some give this merger small chances now, I actually think that, in some ways, DoJ may have made this *more*profitable as a merger than it would have already been if they had just asked for some slots at Reagan National.



Let’s talk about competition, airlines and taxes: Part 1

August 17, 2013 on 1:00 am | In Mergers and Bankruptcy | No Comments

If we use the premise put forth by the US Department of Justice that the US Airways / American Airlines merger is bad for the consumer, then we need to take a very hard, long regulatory look at all of the US airlines, many of its busiest airports and taxes as well.

If anyone was truly concerned about competition in the airline industry, the Justice Department should have continued to block mergers as they did with the original United Airlines / US Airways merger (which was vastly smaller than the one being proposed today).  Instead, they did not.  Rather, a few years later they signaled with US Airways the idea that mergers were necessary in the airline industry landscape.

Quite frankly, I was perfectly happy to see the status quo maintained pre-2005.  That landscape saw:

  • Delta Airlines
  • Northwest Airlines
  • United Airlines
  • Continental Airlines
  • US Airways
  • America West
  • Southwest Airlines
  • AirTran Airways
  • American Airlines
  • Alaska Airlines
  • jetBlue

It was a pretty well balanced mix of airlines of both the legacy and LCC flavors and pretty well distributed across the United States.  Barriers to entry were, compared to today, fairly low.

Then several bankruptcies occurred which included US Airways, United Airlines, Delta Airlines and Northwest Airlines.  One airline (America West) had to get a massive loan after September 11th and essentially reorganize itself to survive as well.  Another airline, American Airlines, got Billion Dollar givebacks from its employees to lower costs instead of performing a bankruptcy.

Of the 11 airlines listed above, 6 suffered exceptional financial trauma.  Another 2 existed on fine line of financial trouble:  AirTran Airways and jetBlue.  Only 3 managed their finances appropriately and saw appropriate returns on investment:  Southwest, Continental and Alaska Airlines.

So we permitted mergers and this is what happened:

  • 2005:  America West takes over US Airways and retains the US Airways name.
  • 2008:  Delta and Northwest merge as equals and retain the Delta Airlines name.
  • 2010:  United and Continental merge as equals and retain the United Airlines name.
  • 2011:  Southwest Airlines takes over AirTran Airways and begins the wind down of the AirTran name.

By 2011, the competitive landscape was dramatically different and American Airlines had to throw in the towel (it should have in 2006, in my opinion) in November of 2011 by filing bankruptcy itself.  In the 2012 / 2013 period, the new airline landscape looks like this:

  • Delta Airlines:  Revenues  $36.6 Billion (2012)
  • United Airlines:  Revenues  $37.1 Billion (2012)
  • American Airlines:  Revenues  $24.8 Billion (2012)
  • Southwest Airlines:  Revenues $17.0 Billion (2012)
  • US Airways:  Revenues $13.8 Billion (2012)
  • Alaska Airlines:  Revenues  $4.6 Billion (2012)
  • jetBlue:  Revenues  $4.9 Billion (2012)
  • Virgin America:  Revenues $1.3 Billion (2012)
  • Frontier Airlines:  Revenues $1.4 Billion (2012)

As you can see, the airlines that exist today are hardly equal despite the perception otherwise.  For instance, Delta and United Airlines both are roughly equal as airlines but the next biggest by revenue is American Airlines which is a staggering $12.3 Billion behind.  If you added US Airways revenues to American Airlines revenues in 2012, you still come in at just $38.8 billion.  Put another way, the new American Airlines Group would operate at roughly the level of United and Delta Airlines.

Southwest would be at a disadvantage seemingly but Southwest’s revenues are based entirely on US based operations and therefore see Southwest operating at parity with the other 3 large carriers.  So, now we have 4 carriers operating at roughly the same scale in the domestic US market.

The remaining four airlines:  jetBlue, Virgin America, Frontier and Alaska Airlines have combined annual revenues of $11.2 Billion or a number that is still less than that of US Airways.  It’s notable that those last 4 airlines are nowhere near national airline scale.  They are all regional or niche in their marketshares.  They can and will survive and at least 2 of them have every opportunity to organically grow much larger.

What my point in all of this?  Scale is critical in this industry and while those billions in revenues sounds healthy, airlines often earn zero profits on such revenues.  The dollars are large, the profits are tiny, at least until very recently.

If you stop the mergers now, you have two giants and three other airlines that would have to be labled as “at risk” over the next decade.  While you allowed that to sort out, the two giants would only become . . . more giant.  And the bigger they grow, the more influence they have on airports and route infrastructure.

So, if you feel the combination of US Airways and American Airlines is anti-competitive and anti-consumer, then you *must* be ready to “break up” Delta and United Airlines.  They don’t have the potential to be dominant.  They already are dominant.  So much so that they dwarf every other airline in the industry.

More on these subjects tomorrow.

In the defense of Parker

August 16, 2013 on 1:00 pm | In Airline News, Mergers and Bankruptcy | No Comments

Some in the media have decided to blame Doug Parker for this development with respect to the Department of Justice lawsuit to stop the merger.  Some like Mitchell Schnurman of the Dallas Morning News for instance.

I believe that is disingenous at best.  Schnurman has been a huge promoter of the merger and Parker to lead the new company.

Did Parker drop the ball?  I do not believe so and here is why:

This announcement has stunned everyone including even those within the government itself.  It caught analysts with decades of experience off guard.  It caught *all* newsmen off guard.  Anyone who could possibly have had an inkling of what was to come has expressed genuine surprise at this development.

So why should Parker be any different?

The truth is that I think that it is possible although highly unlikely that airline attorneys may have gotten a tiny signal from the DoJ but the way Mr. Assistant Attorney General Baer is behaving, I strongly suspect he kept things very secret so he could have his days in the sun.

Parker artfully negotiated all the turns in this deal and, yes, even handled the government deftly.  He had no need to be especially cautious in this deal as the DoJ goes because it defies any logic or precedent that the DoJ would find anything more than the need for givebacks at a single airport:  Reagan National

In fact, I think the way Parker has played this so far indicates he is more than the right man to lead this new company.  He has shown restraint, good humour and a creativity that you just don’t see in most of today’s airline CEOs.

In fact, I’ll go one step farther:  I think Parker has become an airline CEO.  I mean that kind of CEO who operates his business with larger than life personality and a passion that burns.  His zeal for earning a profit is only exceeded by his thrill at being in the airline business.

And it is a lot more than you can say for a lot of other airline CEOs today.

You can bet that Parker has received calls from a wide variety of other airline CEOs commiserating with him on this development because it was both unfair and threatening to the industry as a whole.

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