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Proposed AA/US Airways Merger

Proposed AA/US Airways Merger. Benefits to DFW Airport, Metroplex Consumers and the State of Texas. Prepared for: Dallas Fort-Worth Airport. November 7, 2013. Background. American Airlines (AA) and US Airways (US) announced plans to merge on February 14, 2013.

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Proposed AA/US Airways Merger

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  1. Proposed AA/US Airways Merger Benefits to DFW Airport, Metroplex Consumers and the State of Texas Prepared for: Dallas Fort-Worth Airport November 7, 2013

  2. Background American Airlines (AA) and US Airways (US) announced plans to merge on February 14, 2013 • The merger would create a network airline comparable in size and domestic market share to Delta and United, each of which completed mergers in the past five years • Delta Airlines merged with Northwest in 2008 • United Airlines merged with Continental in 2010 • Both of these previous mergers, and a subsequent merger between Southwest Airlines and AirTran, were cleared by the US Department of Justice (DOJ) • However, the DOJ along with the District of Columbia and seven U.S. States* filed a complaint to permanently block the AA/US merger in August 2013, citing anti-competitive concerns • The purpose of this briefing is to review the expected benefits that an AA/US merger could produce for DFWAirport, Metroplex consumers and the State of Texas * These States are Arizona, Florida, Pennsylvania, Tennessee, Michigan, Virginia and Texas. Texas has since withdrawn from the action.

  3. DFW will be the largest hub, headquarters location, and a strategic priority for the merged AA/US • Large and vibrant domestic and international market • Key international gateway • Strong business climate • Lack of significant physical or economic constraints DFW’s Strategic Attributes

  4. As the leading hub in the AA/US system, DFW’s strong demographic profile will generate sustained growth DFW’s Market Strengths • Ranks 2nd only to Atlanta among U.S. connecting hubs • Serves the 4th largest U.S. metro population at 6.7 million • Larger than either Atlanta or Houston • Only New York, Los Angeles, and Chicago are larger • 4th fastest growing market among the 20 largest U.S. metro areas over the past decade • Ranks 6thon domestic O&D passengers; 4thon domestic O&D passenger revenues

  5. Previously approved mergers positioned Delta and then United as the largest U.S. airline – the merged AA/US will be similarly sized Top U.S. Carriers by RPMs Note: Regional carriers shown separately. Source: DOT Form 41 Reports YE 2Q 2013 CY 2008 CY 2010 Before DL/NW merger Before UA/CO merger, Post DL/NW merger (merged October 2008) Post UA/CO merger (merged August 2010), Before AA/US merger

  6. The development of ATL and IAH after previous airline mergers indicates that DFW should lead network expansion for AA/US • Post-merger, Delta increased hub capacity at ATL - its largest hub • And United grew service at IAH - its largest hub - and San Francisco (a primary international gateway) through 2012 • Similar to ATL and IAH, DFW will grow as the largest hub in the combined AA/US route network Source: OAG Schedules Note: The drop in United’s Houston capacity during the past year may reflect, in part, its response to a dispute with the City of Houston over Southwest’s Airline’s successful initiative to provide future international services at Houston Hobby Change in DL/NW Daily Seat Departures at ATLMarch 2008, 2010 and 2013 Change in UA/CO Daily Seat Departures at IAHMarch 2010, 2012 and 2013

  7. Leadership in global trade requires a competitive AA/US and oneworldalliance at DFW • In 2012, worldwide Texas exports were $265 billion - up 9% vs. 2011 • In 2012, Texas exports accounted for 17% of the U.S. total • International trade (exports/imports) supports 2.9 million or 1 in 5 Texas jobs • Foreign-owned companies employ 428,000 Texas workers • Trade related employment grew 12% vs. total Texas job growth of 6% from 2004 to 2011 Texas Trade is Expanding Rapidly Future economic growth and jobs for the DFW/Metroplex, Texas and America increasingly depend on expanding U.S. trade and investment opportunities in the global marketplace Source: U.S. Department of Commerce , U.S. Census Data 2012; Business Roundtable, David Thomas

  8. The AA/US merger will directly help DFW achieve its full international growth potential New service Existing service as of Oct 2012 American’s new Shanghai, Hong Kong, Seoul, Bogota, and Lima nonstops are precursors of a logical DFW international growth strategy for a merged AA/US June 2014 June 2014 Nov 2013 Nov 2013 Nov 2013 The merger will create additional DFW international growth opportunities to new markets in Central and South America and Asia

  9. American’s commitment to DFW’s Texas regional markets is evidenced by AA’s schedule stability from 2010 to 2013 Source: OAG Schedules AA’s DFW Regional Markets Weekly Departures and Seats at AA’s DFW Regional Markets October 2010 and 2013 “Our negotiations confirm that (American) will…maintain important routes in Texas…” -- Greg Abbott, Texas Attorney General

  10. A strengthened merged airline and DFW hub will produce significant benefits for consumers and businesses in the DFWMetroplex • The merged AA/US will create and sustain leading global connectivity for the DFW/Metroplex, facilitating the movement of people and goods • Network expansion will result in a greater diversity of nonstop services, including both domestic and international routes, with more frequent and convenient schedules • A financially stable and revitalized airline will enhance job security for the 25,000 AA/US employees in Texas • DFW’sstatus as the merged airline’s largest hub will benefit the DFW/Metroplex in attracting new and relocating companies, with positive effects on employment and income

  11. The DFW market is already highly competitive – LCCs now provide nonstop service in 17 of the top 20 DFW domestic markets… Note: O&D to/from DFW Airport only; LCC service includes competitive DAL airport service by Southwest Source: US DOT, O&D Database, Database Products Inc and OAG Schedules

  12. …and LCC competition will increase significantly when the Wright Amendment expires in October 2014 Source: “The Wright Amendment Consumer Penalty,” Cambell-Hill Aviation Group, June 2005; ICF-SH&E analysis. Potential New Southwest Destinations After the Wright Amendment Expires

  13. Conclusion • The proposed AA/US merger will create a stronger competitor to United and Delta, and their respective global alliances • As the leading hub in the combined carrier network, DFW is positioned to grow following an AA/US merger • A strong and growing DFWhub provides critical support to the DFWMetroplex and cities across the state • The DFW market has significant LCC competition today, and this competition will increase when the Wright Amendment expires in October, 2014 • The AA/US merger will benefit DFW Airport, consumers and businesses in the Metroplex region, and the State of Texas

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