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[font=Tahoma, Verdan, Lucida]The US/HP Merger
With Major Surgery on US Airways, It Could Work
[/font][font=Tahoma, Verdana, Lucida]Two adages that have proven generally accurate over the last 25 years: [/font]
[font=Tahoma, Verdana, Lucida]To be sure, whole galaxies of planets will need to align, but there may be some real potential here for a combined stronger entity.[/font]
[font=Tahoma, Verdana, Lucida]US Airways: Dead Airline Flying. We can start with this: US Airways by itself is heading straight for Cadaversville. The combination of costs, competition, and other issues - not all the fault of US Airways - have put the carrier in a position that may now be too far gone to recover. Even its plan - which was incredibly visionary - to open a hub at Ft. Lauderdale has been torpedoed by the FAA's intent to put operational caps in place at that airport.[/font]http://www.aviationplanning.com/images/hf23may1.JPG
[font=Tahoma, Verdana, Lucida]For America West, they have no current imperative to merge with anybody, let alone with a collapsing entity such as US Airways. But the concept of gaining - and substantially re-deploying - the key assets (aircraft, stations, and two East Coast hub operations) of US Airways could, if planned from a clean-sheet approach, could result in something much more than the sum of the original parts.[/font]
[font=Tahoma, Verdana, Lucida]However, just putting the two carriers together, without major surgery, will flat-out lead to failure. That's because as it stands, there really aren't substantial "synergies" - a much overused word - between the two carriers. The route systems are not well structured to cross-feed traffic. The corporate cultures are two or three centuries apart. The labor issues could degenerate into the equivalent of a Baghdad firefight. Finally, some relatively substantial re-fleeting will be necessary.[/font]
[font=Tahoma, Verdana, Lucida]But, that doesn't mean that synergies can't be developed.[/font]
[font=Tahoma, Verdana, Lucida]Issues to consider:[/font]
[font=Tahoma, Verdana, Lucida]Lenders of Last Resort? Or Lenders of Best Resort? The people underwriting this merger could be mistaken for lenders of last resort, who are desperate to keep the US Airways mothership afloat. [/font]
[font=Tahoma, Verdana, Lucida]To the contrary, they would better be described as "lenders of best resort" - entities that can see the future potential value of the combined carriers. Entities that are, as the Wall Street types describe them, "suitable and sophisticated." Take a look - there's GE, Airbus, credit card companies, and a whole army of other lenders, none of whom, as far as we know, just fell off a turnip truck. These are not necessarily people who have to do the deal, at least most of them.[/font]
[font=Tahoma, Verdana, Lucida]US Airways' Current Route System May No Longer Be Viable. It remains to be seen if just restructuring finances and parking some airplanes will be enough to make the existing US Airways route structure profitable. [/font]
[font=Tahoma, Verdana, Lucida]Most likely, it won't. The general north-south orientation of US Airways puts it in an environment where it will continue to compete with low-cost carriers in markets that have, and will likely continue to have, enormous over-capacity. Just adding some additional eastbound spokes into the HP hubs at Phoenix and Las Vegas isn't likely to change the fundamental and dismal revenue dynamics of the Northeast-Florida market.[/font]http://www.aviationplanning.com/images/hfmay234.JPG
[font=Tahoma, Verdana, Lucida]Buttressing the argument that there is little additional traffic that the combined route structures can develop, it should be remembered that US Airways today has a code share agreement with United, one that will go away with the merger. The traffic flows US Airways now accesses through the UA hubs at Denver and Chicago/O'Hare are likely much stronger than what America West can offer through PHX and LAS.[/font]
[font=Tahoma, Verdana, Lucida]Conclusion: Chances are that what is today the US Airways core route structure will need to be re-oriented into a more East-West focus. And soon.[/font]
[font=Tahoma, Verdana, Lucida]Nationwide Full-Service, Low Cost Carrier - Yes, But When? As it stands, the merged carrier cannot really be described as "nationwide."[/font]
[font=Tahoma, Verdana, Lucida]The maps of the current US/HP route systems might be impressive, but they really don't have much in common. Even if the four major hubs are inter-connected, it's an open question if the service will be competitive with other consumer options, regardless of low costs and low fares. [/font]
[font=Tahoma, Verdana, Lucida]Another issue is that the combined systems have no true national presence, and therefore the possibility of being a "full-service, nationwide low cost carrier" is a long way off. Roughly between the Pennsylvania-Ohio border on one hand, and Phoenix on the other, neither US Airways nor America West have much brand-loyalty.[/font]
[font=Tahoma, Verdana, Lucida]There is the concept of "bridging" connecting passengers between hubs at PHL and CLT on one hand, and PHX and LAS on the other. That might look good on paper, but it would mean non-competitive double connections between a lot of mid-size markets.[/font]
[font=Tahoma, Verdana, Lucida]Labor Issues. The combined entity will - without question - end up with fewer employees. While that may be a fact of merger life, it still doesn't set well with labor unions. If the combined entity will be flying fewer mainline airplanes, that means fewer mainline pilots. Regardless of what codicils may be in ALPA by-laws, regardless of the brave face put out by union leaders, the fact is that less airplanes means less employees. And putting these work groups together will be very difficult. [/font]
[font=Tahoma, Verdana, Lucida]Starting The Inning With Two Outs: The Name: US Airways. It's a judgement call, but using US Airways as the surviving name may be a huge mistake. [/font]
http://www.aviationplanning.com/images/hf23may5.JPG[font=Tahoma, Verdana, Lucida]Some have noted that "America West" isn't appropriate for a carrier with high presence in the East. That's probably why Southwest is having such a devil of a time peddling tickets in Albany, Buffalo, Manchester, and Providence.[/font]
[font=Tahoma, Verdana, Lucida]Others have opined that "US Airways" has strong consumer-recognition. Great. So does al Qaeda, but naming a carrier after it wouldn't be such a hot idea. And, after the US Airways labor slow-down fiasco of last Christmas, some consumers along the East Coast might put both names in the same category. (And, please, save the protests that the incidents over the holidays were due solely to under-staffing. Just about all of us here at The Boyd Group have worked on both sides of the belt loader.)[/font]
With Major Surgery on US Airways, It Could Work
[/font][font=Tahoma, Verdana, Lucida]Two adages that have proven generally accurate over the last 25 years: [/font]
[font=Tahoma, Verdana, Lucida]1. Airlines usually don't go out of business by missing an expansion opportunity.[/font]
[font=Tahoma, Verdana, Lucida]2. Mergers generally tend to end up making a lot of lawyers rich, deal makers happy, executives wealthy, and a lot of workers unemployed.[/font]
[font=Tahoma, Verdana, Lucida]This time, however, these may not fully apply. There is the potential for the America West takeover of US Airways to turn out, if not with a completely happy ending, at least in a manner that both carriers are better off then before. [/font][font=Tahoma, Verdana, Lucida]2. Mergers generally tend to end up making a lot of lawyers rich, deal makers happy, executives wealthy, and a lot of workers unemployed.[/font]
[font=Tahoma, Verdana, Lucida]To be sure, whole galaxies of planets will need to align, but there may be some real potential here for a combined stronger entity.[/font]
[font=Tahoma, Verdana, Lucida]US Airways: Dead Airline Flying. We can start with this: US Airways by itself is heading straight for Cadaversville. The combination of costs, competition, and other issues - not all the fault of US Airways - have put the carrier in a position that may now be too far gone to recover. Even its plan - which was incredibly visionary - to open a hub at Ft. Lauderdale has been torpedoed by the FAA's intent to put operational caps in place at that airport.[/font]http://www.aviationplanning.com/images/hf23may1.JPG
[font=Tahoma, Verdana, Lucida]For America West, they have no current imperative to merge with anybody, let alone with a collapsing entity such as US Airways. But the concept of gaining - and substantially re-deploying - the key assets (aircraft, stations, and two East Coast hub operations) of US Airways could, if planned from a clean-sheet approach, could result in something much more than the sum of the original parts.[/font]
[font=Tahoma, Verdana, Lucida]However, just putting the two carriers together, without major surgery, will flat-out lead to failure. That's because as it stands, there really aren't substantial "synergies" - a much overused word - between the two carriers. The route systems are not well structured to cross-feed traffic. The corporate cultures are two or three centuries apart. The labor issues could degenerate into the equivalent of a Baghdad firefight. Finally, some relatively substantial re-fleeting will be necessary.[/font]
[font=Tahoma, Verdana, Lucida]But, that doesn't mean that synergies can't be developed.[/font]
[font=Tahoma, Verdana, Lucida]Issues to consider:[/font]
[font=Tahoma, Verdana, Lucida]Lenders of Last Resort? Or Lenders of Best Resort? The people underwriting this merger could be mistaken for lenders of last resort, who are desperate to keep the US Airways mothership afloat. [/font]
[font=Tahoma, Verdana, Lucida]To the contrary, they would better be described as "lenders of best resort" - entities that can see the future potential value of the combined carriers. Entities that are, as the Wall Street types describe them, "suitable and sophisticated." Take a look - there's GE, Airbus, credit card companies, and a whole army of other lenders, none of whom, as far as we know, just fell off a turnip truck. These are not necessarily people who have to do the deal, at least most of them.[/font]
[font=Tahoma, Verdana, Lucida]US Airways' Current Route System May No Longer Be Viable. It remains to be seen if just restructuring finances and parking some airplanes will be enough to make the existing US Airways route structure profitable. [/font]
[font=Tahoma, Verdana, Lucida]Most likely, it won't. The general north-south orientation of US Airways puts it in an environment where it will continue to compete with low-cost carriers in markets that have, and will likely continue to have, enormous over-capacity. Just adding some additional eastbound spokes into the HP hubs at Phoenix and Las Vegas isn't likely to change the fundamental and dismal revenue dynamics of the Northeast-Florida market.[/font]http://www.aviationplanning.com/images/hfmay234.JPG
[font=Tahoma, Verdana, Lucida]Buttressing the argument that there is little additional traffic that the combined route structures can develop, it should be remembered that US Airways today has a code share agreement with United, one that will go away with the merger. The traffic flows US Airways now accesses through the UA hubs at Denver and Chicago/O'Hare are likely much stronger than what America West can offer through PHX and LAS.[/font]
[font=Tahoma, Verdana, Lucida]Conclusion: Chances are that what is today the US Airways core route structure will need to be re-oriented into a more East-West focus. And soon.[/font]
[font=Tahoma, Verdana, Lucida]Nationwide Full-Service, Low Cost Carrier - Yes, But When? As it stands, the merged carrier cannot really be described as "nationwide."[/font]
[font=Tahoma, Verdana, Lucida]The maps of the current US/HP route systems might be impressive, but they really don't have much in common. Even if the four major hubs are inter-connected, it's an open question if the service will be competitive with other consumer options, regardless of low costs and low fares. [/font]
[font=Tahoma, Verdana, Lucida]Another issue is that the combined systems have no true national presence, and therefore the possibility of being a "full-service, nationwide low cost carrier" is a long way off. Roughly between the Pennsylvania-Ohio border on one hand, and Phoenix on the other, neither US Airways nor America West have much brand-loyalty.[/font]
[font=Tahoma, Verdana, Lucida]There is the concept of "bridging" connecting passengers between hubs at PHL and CLT on one hand, and PHX and LAS on the other. That might look good on paper, but it would mean non-competitive double connections between a lot of mid-size markets.[/font]
[font=Tahoma, Verdana, Lucida]Labor Issues. The combined entity will - without question - end up with fewer employees. While that may be a fact of merger life, it still doesn't set well with labor unions. If the combined entity will be flying fewer mainline airplanes, that means fewer mainline pilots. Regardless of what codicils may be in ALPA by-laws, regardless of the brave face put out by union leaders, the fact is that less airplanes means less employees. And putting these work groups together will be very difficult. [/font]
[font=Tahoma, Verdana, Lucida]Starting The Inning With Two Outs: The Name: US Airways. It's a judgement call, but using US Airways as the surviving name may be a huge mistake. [/font]
http://www.aviationplanning.com/images/hf23may5.JPG[font=Tahoma, Verdana, Lucida]Some have noted that "America West" isn't appropriate for a carrier with high presence in the East. That's probably why Southwest is having such a devil of a time peddling tickets in Albany, Buffalo, Manchester, and Providence.[/font]
[font=Tahoma, Verdana, Lucida]Others have opined that "US Airways" has strong consumer-recognition. Great. So does al Qaeda, but naming a carrier after it wouldn't be such a hot idea. And, after the US Airways labor slow-down fiasco of last Christmas, some consumers along the East Coast might put both names in the same category. (And, please, save the protests that the incidents over the holidays were due solely to under-staffing. Just about all of us here at The Boyd Group have worked on both sides of the belt loader.)[/font]
