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A subsidiary of AMR Corporation, American Airlines (AA) is based at Dallas Fort Worth with hubs in Chicago, Miami and New York. Merging with TWA Airlines in 2001, AA uses an large fleet of Boeing and Airbus aircraft. AA’s extensive network includes domestic and regional services within North America and international services to Europe, Asia, Central America and South America. AA is a founding member of the oneworld alliance. The carrier filed for bankruptcy protection on 29-Nov-2011. As part of its restructuring plan, the carrier unveiled a new livery and branding in Jan-2013.
Location of American Airlines main hub (Dallas/Fort Worth International Airport)
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The saga that ensued after the US Department of Justice in Aug-2013 sued to block the merger between American Airlines and US Airways is now officially over. Arguably, not too much will change once the conditions of the settlement are implemented - which begs the question of why the two sides did not act more responsibly in the first place to prevent a protracted and futile legal exercise that only added extra expense to the already expensive proposition of combining two airlines.
The whole affair smacks of wasteful macho grandstanding. In the end, only limited concessions were imposed - but presumably the airlines had not been prepared to concede them in negotiations - and nobody comes out of this looking clever.
The bulk of the concessions agreed to by American and US Airways – slot divestment at Washington National Airport – was not surprising since speculation was rampant that the carriers would likely have to shed some slots at the airport in order to move forward. While American and US Airways opted to stick to their bullishness that no divestment was necessary, in the end holding stubborn to their beliefs resulted in a three month delay of the merger moving forward – hardly responsible behaviour for a company that is attempting to build a powerful global carrier.
Japan may be the land of the rising sun, but for US airlines the country is fading in importance. American Airlines, Delta Air Lines and United Airlines will have fewer seats from the continental US to Japan in 2014 than in 2013. Japan will also comprise a smaller share of their Asian network. American and Delta in 2003 had Japan as their sole Asian destination from the US, but in 2014 Japan will account for only 43% of American's Asia capacity and 66% of Delta's. United's Japan exposure has decreased from 67% in 2003 to 42% in 2014.
The carriers are adding capacity to Hong Kong, Korea and Taiwan, but the main beneficiary of their growth is mainland China. American and United in 2014 will have almost as much capacity to China as to Japan. The change comes as American and United settle into joint-ventures with Japanese partners while Delta looks for a partner of its own. Despite China's increase in capacity significance, the market still has to mature from a premium and outbound standpoint. And no doubt China-US JVs will emerge, and one day overtake the Japan-US JVs.
As Delta Air Lines continues a seemingly open attack on its partner Alaska Air Group at its Seattle hub, Alaska Airlines is stressing that alliances like its long-time pact with Delta are complicated. Its overall message is that it will work with Delta where it is mutually beneficial and compete vigorously as Delta continues its encroachment.
Delta’s latest moves are in two of Alaska’s key north-south markets on the US Pacific west coat – Portland and Seattle. Ironically, Delta seems to be practicing what Alaska executives recently stressed to analysts – removing emotion from evolving competitive dynamics. As Delta continues its moves into Alaska’s markets unabated, it certainly is showing no emotion as Seattle continues to rise in prominence in Delta’s domestic and international network.
Just how the current competitive build-up by Delta in Alaska’s markets will affect their long-term relationship is uncertain. But in the meantime Alaska continues to post financial results that are among the best in the US industry, which means that it has a strong foundation from which to defend itself.
US carrier results in their Atlantic entities during 3Q2013 reflect an uptick predicted by IATA in the region at the onset of the quarter as business confidence is showing signs of improvement and economic conditions in Europe and the US are showing some positive development.
While the 16-day US Government shutdown in Oct-2013 may put a slight damper on corporate demand, most of the major US airlines believe the North Atlantic will continue to gain momentum as it seems capacity growth appears rational.
American and Delta continue to tout their respective joint venture business arrangements with their respective partners in the oneworld and SkyTeam alliances. Meanwhile US Airways’ strategy to grow its corporate revenues across the Atlantic also appears to be bearing fruit. The carrier is actively pursuing corporate accounts in Europe without the benefit of joint sales included in the immunised trans-Atlantic joint ventures operated by the three large global groupings.
Similar to US carriers Delta and US Airways, Southwest Airlines recorded a strong financial performance in 3Q2013, driven partly by its ability to raise fares as well as some relief in unit cost pressure. The carrier remains optimistic about 4Q2013 even as it faces some headwinds stemming from the US Government shutdown and the sliding of busy travel days for the US Thanksgiving holiday from Nov-2013 to Dec-2013.
Southwest reaches a milestone in Nov-2013 when its de-hubbing of Atlanta takes full effect. By Apr-2014 Southwest and AirTran will deploy 160 daily flights from the largest US airport in terms of passenger enplanements. At that time Atlanta will be roughly the same size in terms of departures as Houston Hobby or Phoenix – two of Southwest’s top markets. But it will pale in comparison to Chicago Midway, which currently has roughly 253 daily departures.
Southwest’s management has concluded that Atlanta was a “challenge” for AirTran prior to the carrier's acquisition by Southwest and the de-hubbing should produce improvements in bolstering traffic in the local market from the airport. Carrier executives are also stressing the company’s shrinking footprint in Atlanta should not be interpreted as the airport’s value diminishing in the combined Southwest-AirTran network.
United Airlines’ top-line 3Q2013 profit was undermined by weaker unit revenue and yield performance relative to its US legacy peers, a problem that has plagued the carrier for the past year.
The weaker performance is the latest in a string of quarterly results in which the carrier has declared disappointment and pledged that its fortunes will improve. Specific to 3Q2013, the culprits ticked off by the airline included incorrect demand forecast projections, continued pressure in the trans-Pacific and some suboptimisation of its fleet.
To say United has endured a rough couple of years is an understatement. But what the industry and its investors are looking for now is a meaningful improvement in its results that so far has yet to materialise. Three years after the merger’s close the company is still struggling with revenue and cost management – basic tenets of the business that continue to suffer.
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