PanAm747 From United States, joined Feb 2004, 3713 posts, RR: 5 Posted (1 year 7 months 6 days 23 hours ago) and read 1775 times:
In the go-go merger-mania 1980's, no airline was considered in the elite clique unless they found someone to merge with - NW and Republic, Delta and Western, UA acquiring PA's Pacific routes (as good as a merger), USAir with...well, anyone they could get their hands on.
For better for worse, this is business. I am wondering, however, what did AA get out of the whole deal with the acquisitions of Air Cal and Reno Air?
I know that USAir bought PSA, but promptly abandoned the market to Southwest, as AA did with Air Cal, yet a few years later, they purchased Reno Air, grounded the fleet, and abandonded the routes. What purpose did this serve? Was it a failed attempt at a second western hub?
Thanks for your insights!!
Pan Am:The World's Most Experienced Airline - P(oor) S(ailor's) A(irline): San Diego's Hometown Airline-Catch Our Smile!
KL808 From United States, joined May 1999, 1510 posts, RR: 5 Reply 1, posted (1 year 7 months 6 days 23 hours ago) and read 1764 times:
Quoting PanAm747 (Thread starter): For better for worse, this is business. I am wondering, however, what did AA get out of the whole deal with the acquisitions of Air Cal and Reno Air?
USPIT10L From United States, joined Mar 2006, 1500 posts, RR: 7 Reply 2, posted (1 year 7 months 6 days 23 hours ago) and read 1737 times:
Quoting PanAm747 (Thread starter): I know that USAir bought PSA, but promptly abandoned the market to Southwest, as AA did with Air Cal, yet a few years later, they purchased Reno Air, grounded the fleet, and abandonded the routes. What purpose did this serve? Was it a failed attempt at a second western hub?
According to the AA 1999 annual report, the purpose of the QQ acquisition was to strengthen and grow AA's market on the west coast, through growth at LAX and SJC. SJC was going to be used as a Pacific Rim and transatlantic hub (SJCCDG was started and cut in 2001, SJCLGW was applied for, but denied by the DOT). As for AA's acquisition of OC, I haven't a real clue, but it could have been the same. A whole generation of California travelers could walk up and purchase dirt-cheap fares from SNA, LAX, SFO, and SJC to almost anywhere in California because of AirCal and PSA. After AA and US got through gutting their networks, aircraft and people, UA and WN became the strongholds of intra-California traffic.
Commavia From United States, joined Apr 2005, 6079 posts, RR: 42 Reply 3, posted (1 year 7 months 6 days 23 hours ago) and read 1737 times:
Quoting PanAm747 (Thread starter): I am wondering, however, what did AA get out of the whole deal with the acquisitions of Air Cal and Reno Air?
AA suffered from horrible timing in both situations, plus the ultimate inevitability that they could never compete with Southwest.
AA bought AirCal in 1987, right as the earliest Silicon Valley rumblings were beginning to get going with growing information technology investment. This collapsed, however, in the 1991-1993 period when the economy softened, killing AA's first attempt at a SJC hub. AA's retreat left a huge market for Southwest to backfill, just as with what happened in Nashville and Raleigh/Durham.
The second time around, AA bought Reno Air in 1999 -- again, right at the peak of the tech bubble. At the time, Reno Air had an excellent network spanning up and down the west coast with flights focused on AA's three (at the time) most important west coast "focused growth" markets: San Jose, Los Angeles and Orange County. This effort also died, however, when the tech bubble burst in 2000-2001, once again leaving AA holding the bag.
This time around, though, Southwest already had a very agressive and dominant market position in San Jose and the Bay Area, making it nearly impossible for AA to ever really build back their again.
AA's flawed logic in both cases was this: AA felt that by combining strong north-south networks up and down the West Coast (provided by either AirCal or Reno Air) with their extremely strong east-west transcon and domestic newtork, plus international, Hawaii and alliance connections, would allow them to produce stronger yields in these shorthaul West Coast markets. The reality, however, is that these markets have been and will continue to be driven by price and price alone, and there is simply no way around it.
As long as AA can't profitably compete on price with Southwest and other low-cost short-haul operators, it will never be able to operate a profitable, meaningful presence up and down the West Coast.
DesertAir From United States, joined Jan 2006, 874 posts, RR: 0 Reply 6, posted (1 year 7 months 6 days 22 hours ago) and read 1662 times:
AA gained the distain of many West Coast passengers as did US Airways. Both AA and US destroyed colorful California native airlines. I would rather have PSA and AirCal flying up and down the California Coast and other western cities than WN...but WN took up the challenge of the California Inerstate market.
Commavia From United States, joined Apr 2005, 6079 posts, RR: 42 Reply 7, posted (1 year 7 months 6 days 22 hours ago) and read 1647 times:
Quoting Bucky707 (Reply 5): Both AA and US destroyed colorful California native airlines. I would rather have PSA and AirCal flying up and down the California Coast and other western cities than WN
If AA had not bought out AirCal, and USAir had not bought PSA, both would definitely have been long-gone. Even if either had survived the recession of 1992-1993, I highly doubt that either airline would ever have survived the tech bubble bursting, let alone 9/11. Southwest would have finished them both off long ago.
Sllevin From United States, joined Jan 2002, 3376 posts, RR: 6 Reply 8, posted (1 year 7 months 6 days 22 hours ago) and read 1630 times:
Quoting Commavia (Reply 3): This effort also died, however, when the tech bubble burst in 2000-2001, once again leaving AA holding the bag.
It was compounded, IIRC, by the fact the QQ was already bleeding money on its network. As you said, AA's hope was for the combined operation to increase load and yield on QQ's routes and thus make them profitable, but the market downturn precluded that.
PanAm747 From United States, joined Feb 2004, 3713 posts, RR: 5 Reply 9, posted (1 year 7 months 6 days 14 hours ago) and read 1366 times:
Thanks for your replies!!
I understood the Air Cal thing - everybody was buying everybody on a binge worthy of Paris Hilton , but the Reno Air seemed like it was over from the start - AA bought it, and immediately dismantled it. Kind of like AA telling Reno and San Jose, like a parent to a small child, "no, you're not allowed to ever have a hub".
Fleet incompability, very little overlap...without knowing the economics, I almost assumed it was done just for spite. Now, at least, I know better.
Pan Am:The World's Most Experienced Airline - P(oor) S(ailor's) A(irline): San Diego's Hometown Airline-Catch Our Smile!
AAR90 From United States, joined Jan 2000, 2727 posts, RR: 38 Reply 11, posted (1 year 7 months 6 days 13 hours ago) and read 1297 times:
AA purchased OC because.... it had to. AA only wanted a jet airline partner on the west coast for the "halo effect" associated with the AAdvantage program. Originally AA looked at PSA, but PSA management wasn't interested. So AA looked toward AirCal. As that was happening, AA competitors were lurking in the shadows and both PSA and AirCal managements were feeling out the sell option. AA again looked at PSA, but it was 120% mortgaged so AirCal looked like the better option. Continental almost purchased AirCal, but Crandall stepped in with a sweatened, all-cash now offer. What did AA gain? SNA slots that produced annual incremental revenue to AA equal to the total purchase price of AirCal.
AA tried to make a N/S west coast hub work, but.... everybody knows how that turned out. For both USAir and AA, operating full planes on the west coast earning $1,000 profit/flight never made sense when they could operate those same plane on east coast flights 1/2 full and earn $3,000 profit/flight. If it wasn't AA/USAir who purchased AirCal/PSA, somebody else would have... with nearly the same affect.
AA purchased Reno Air.... because it had to. QQ management placed the company on the auction block and AA purchased it before any of AA's competitors could make a viable competitive offer. AA did this to protect its high-yield AAdvantage customers, many of which chose QQ for west coast flying specifically because QQ offered the AAdvantage program. Purely a defensive move with little objective to "gain" anything.
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Jamake1 From United States, joined May 2004, 474 posts, RR: 3 Reply 12, posted (1 year 7 months 6 days 11 hours ago) and read 1241 times:
quote=Commavia,reply=7]f AA had not bought out AirCal, and USAir had not bought PSA, both would definitely have been long-gone. Even if either had survived the recession of 1992-1993, I highly doubt that either airline would ever have survived the tech bubble bursting, let alone 9/11. Southwest would have finished them both off long ago.
[/quote]
Not exactly correct. Southwest only started penetrating intra-California markets in 1989...after AA had started running American Eagle Convairs (unsuccessfully) on former Air Cal routes...and USAir had already begun decreasing frequencies in the California corridor. Southwest flew SFO-SAN and SFO-LAS since the early eighties, but had a very minor presence in California. AA's Convair service (OAK-BUR) was very short-lived, and AA dropped the route...as well as many others...altogether. This left a void in the market and Southwest swooped in. Another problem operationally, was that USAir sent PSA's Super 80's back east and started flying 737-300's in the California market. The problem was, however, that the flights originated on the east coast and would then continue as a tag-on intra-state flight. Weather problems back east led to compromised schedule integrity.
Both airlines were guilty of not understanding the westcoast market. I refute your assumption that PSA and Air Cal would've been out of business had they not been taken over by US and AA, respectively. Alaska has weathered the competitive storm quite well, and my belief is that PSA and Air Cal would've done the same...
AeroWesty From United States, joined Oct 2004, 15527 posts, RR: 63 Reply 13, posted (1 year 7 months 6 days 10 hours ago) and read 1189 times:
Quoting AAR90 (Reply 11): What did AA gain? SNA slots that produced annual incremental revenue to AA equal to the total purchase price of AirCal.
Quoting Jamake1 (Reply 12):
Both airlines were guilty of not understanding the westcoast market. I refute your assumption that PSA and Air Cal would've been out of business had they not been taken over by US and AA, respectively. Alaska has weathered the competitive storm quite well, and my belief is that PSA and Air Cal would've done the same..
I agree with your assessment. PSA weathered far greater threats to its existence over the years than a short-lived recession. AirCal's and PSA's home market was the world's 8th largest economy on earth. It's also well documented that Southwest had all but given up on making a run on California until USAir simply packed up and left town in May '91.
It might even be said that Alaska wouldn't have made the inroads they have up and down the west coast had neither AirCal or PSA been bought out. I other intra-California and west coast news, United just keeps humming right along as they always have.
Flyboy7974 From United States, joined Jan 2003, 1342 posts, RR: 2 Reply 14, posted (1 year 7 months 6 days 9 hours ago) and read 1172 times:
All that AA got out of both aquisitions were a few slots in ORD. That's all, and with the second, finally the end of a secret that so many thought that Crandall had his hand in the pocket of RenoAir.
At both times, AA used the want to "build west coast presence" but it was obvious immediately with the RenoAir purchase that this was not the fact being that with the acquisition immediate route closures were announced and a complete immediate restructure took place. Not like most other mergers. AA did at least integrate the AirCal infrastructure for a period of time before finally realizing that AirCal was as opposite as could possibly be from AA. AirCal utilized a fleet of B737-300 and Bae146 jet aircraft while neither of those were found in the AA fleet. With the AirCal purchase as well as the RenoAir purchase, both times AA obtained numerous landing rights also in SNA.
AA also both times abandoned to what they had promised not to, but abandoned numerous smaller cities as destinations were closed and routes withdrawn, employees who were told how great the AA acquisition would benefit them, and hubs like San Jose (twice) and Reno (once) that were competing against the fortresses known as Southwest, United (Shuttle by United) and the Alaska north to south route and hub systems.
I do remember with the RenoAir acquisition specifically that from start to finish, AA seemed scandalous. Our family had quite a bit of interest in QQ and sadly enough it was what was happening behind the scenes that disgruntled most of the QQ employees and RenoAir patrons. Even though both airlines flew the MD-80, the cockpits lacked synergy and AA had to paint the QQ planes white to identify the difference in specs so that waiting crew, sups, and station ops were able to recognize which a/c were previous QQ. MD-90 and MD-87 a/c were disposed of and before we all knew it, another smaller west coast start up was eaten alive and left as scraps.
Sllevin From United States, joined Jan 2002, 3376 posts, RR: 6 Reply 15, posted (1 year 7 months 6 days 5 hours ago) and read 1102 times:
Quoting Flyboy7974 (Reply 14): AA had to paint the QQ planes white to identify the difference in specs so that waiting crew, sups, and station ops were able to recognize which a/c were previous QQ
They simply left the QQ birds in white, added red and blue stripes, and painted the tails grey. Mainly because it's a project to take a painted airplane and turn it back to polished metal.
28l28l From Ireland, joined Nov 2005, 211 posts, RR: 0 Reply 16, posted (1 year 7 months 6 days 2 hours ago) and read 1000 times:
Above all else, mergers are about big, fast money for CEOs, top management and major stock holders (ie. Don Carty and QQ, then TW within his short tenure). Routes, the public benefit, fleet types and employees are all a distant second (and third).
AAR90 From United States, joined Jan 2000, 2727 posts, RR: 38 Reply 17, posted (1 year 7 months 5 days 23 hours ago) and read 887 times:
Quoting Flyboy7974 (Reply 14): I do remember with the RenoAir acquisition specifically that from start to finish, AA seemed scandalous.
Welcome to the Don Carty version of "growth." In hindsight it is easy to see there was no "growth" in the AA purchase of QQ, nor was there much "protection" of AAdvantage customers. But that is what Carty claimed was the objective.
Quote: ...AA had to paint the QQ planes white to identify the difference in specs so that waiting crew, sups, and station ops were able to recognize which a/c were previous QQ.
Sorry, but the nose number is all that was required to ID an ex-QQ bird. The real reason the planes remained white is because that was a requirement of the original lease agreement of QQ. The fuselages were annodized(sp?) as a corrosion prevention technique and when AA inquired about stripping the planes to polished bare metal (to match the rest of AA's fleet), the owners of the planes said: "no." Therefore, the alternative paint scheme.
Quoting 28l28l (Reply 16): Above all else, mergers are about big, fast money for CEOs, top management and major stock holders (ie. Don Carty and QQ, then TW within his short tenure). Routes, the public benefit, fleet types and employees are all a distant second (and third).
I'm not a big (or little) fan of Don Carty, but neither he nor any AA senior executive made any $$$ from the AA mergers --they are prohibited from owning any equity in other airlines or airline suppliers. OTOH, QQ management placed that airline up for sale and supposedly made a nice profit.
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