Davide Pavone

Davide Pavone
Contributor since: 2010
According to a Bank of Canada discussion paper, fundamental factors are behind increasing oil prices:
http://bit.ly/LjN810
The AirTran codeshare is not expected until 2013; I would avoid Southwest until then.
"I see it possibly merging with US Airway [sic] to gain scale and unlock revenue and cost synergies."
I would argue that Delta's network would not complement that of US Airways. Moreover, the DOJ would eliminate any potential network synergies.
"It is rumored that US Airways is currently discussing with creditors about the proposed merger."
Bear in mind that Parker has said that merging is "no longer a strategic imperative."
http://bit.ly/Hq2kq1
Finally, do not overlook the negative consequences of government policy:
http://bit.ly/HuzXaV
In their February 27th Hot Flash, the Boyd Group International notes that United will replace Southwest in the Sarasota-Chicago market. They write that it is "the first time that a legacy carrier has entered a substantial market abandoned by an LCC." Frontier's entrance into terminated AirTran markets also calls Southwest's competitiveness into question.
Oliver Wyman recently released their airline economic analysis for 2012:
http://bit.ly/zxdvrH
US Airways stands to benefit from Southwest's changes to AirTran's ATL operations:
http://bit.ly/z5qD4R
What about ALK? WestJet is another airline worth considering.
The Boyd Group International's commentary is a highly recommended read:
http://bit.ly/q3dOV8
http://bit.ly/nVu3zt
The debt-to-equity ratio overlooks off-balance sheet financing. Operating leases and purchase commitments should be added to total debt.
Don't overlook the possibility of higher fees and surcharges:
http://bit.ly/ocPaSu
The Boyd Group International believes the C-Series might benefit from Boeing's plight:
www.aviationplanning.c...
Oliver Wyman conducted an economic analysis of major U.S. air carriers for the Raymond James Global Airline Conference:
www.oliverwyman.com/ow...
Although the report is dated, exhibits 10, 13, and 18 (pages 12, 15, and 19, respectively) are worth noting.
According to Oliver Wyman, we should expect to see "narrowing CASM gap between the value carriers and the network carriers, and solid growth in RASM for both kinds of carriers, strongly driven by capacity discipline":
www.oliverwyman.com/ow...
Do not forget the money pit that is the present-day ATC system. The Boyd Group estimates that ATC-related delays cost the industry around $10 billion a year:
www.aviationplanning.c...
AA has a strong domestic presence and low non-labor costs:
www.swelblog.com/artic...
WN operates a spoke-hub system at various airports; see slides 13 and 18:
www.aviationplanning.c...
According to a Canadian mortgage market primer prepared by TD Securities, "mortgage insurance in Canada covers the full loan amount (plus accrued interest), not just the initial amount necessary to get the loan-to-value ratio down to a certain threshold": www.td.com/economics/s...
(see page 9, "Coverage")
The boom in Canadian residential real estate is unsustainable; check out the figures I've drawn up: seekingalpha.com/insta...
The statistics provided by the BTS indicate that the AA-TWA merger did not reduce ASMs in the long-run:
www.bts.gov/xml/air_tr...
I think you've misunderstood my comment. I am referring to the entire U.S. air travel system as opposed to one post-merger carrier.
I do not counter “strawman” arguments. The two general charges made against the United-Continental merger are that it will (i) reduce air service and (ii) cause air fares to rise. The article simply argues that if routes were to be terminated, and airline ticket prices were to rise, it would not be “bad.”
The article explains that the history of airline mergers may not be used to determine whether the United-Continental merger will be successful. Actually, empirical evidence supports my arguments. Despite past airline mergers, the number of available seat-miles has not declined in the long-run, real airline ticket prices have not risen in the long-run, and no airline has earned economic profit in the long-run.
I actually support the full and complete repeal of all antitrust laws. For a general overview of the arguments against antitrust legislation, I recommend you read “Antitrust: The Case for Repeal” by D. T. Armentano:
mises.org/books/Antitr...
I highly doubt that there could ever be One Big Airline; please see p. 659 (p. 723 of the pdf document) of “Man, Economy, and State with Power and Market” by M. Rothbard:
mises.org/books/mespm.pdf
I am aware that managers may put their interests above those of a firm’s shareholders. The following article discusses the role of greed in corporate mergers:
mises.org/journals/jls...
What do you suggest as a replacement for the term "regional"?
You’ve asked the $64 question.
Please bear in mind that I am simply an undergraduate commerce student with an interest in commercial aviation, and am not aware of the present state of contractual negotiations and labor relations. I do not know which major airline pilot group, if any, will cede the operation of 76-90 seat aircraft to regional airlines. However, I will comment on the possibility of a regional airline, apart from Mesa and Republic, operating aircraft that seat 76-90 passengers. Given that mainline pilot groups tend to relax scope restrictions in return for higher wages and better working conditions, I think the question to ask is whether wages will rise without scope relief. Firstly, I will briefly explain how factors of production are priced (theoretically).
The rental price of a factor of production is equal to its discounted marginal value product (DMVP). The marginal value product (MVP) is the additional revenue that the factor of production contributes to the firm. The DMVP is simply the MVP discounted for time and risk. The MVP is determined by the marginal physical product (MPP) times the price of the product.
With regards to an airline pilot, available seat-miles flown per hour is considered to be the MPP, while the price per available seat-mile is said to be the price of the product. Suppose the airline pilot flies 1,000 available seat-miles per hour, the price per available-seat mile is $0.01, and the firm requires a discount rate of 10%. The pilot’s DMVP is (11,000*$0.01)/1.10 = $100 per hour. Given that a pilot’s MPP is dependent on the aircraft operated, and the pilot generally does not change aircraft form year to year, a rise in air fares would be a more likely cause of a rise in DMVP.
Mainline pilot groups would like use the present round of collective bargaining to raise wages to pre-2001 levels (if I’m not mistaken). According to the abovementioned theoretical framework, any rise in present-day wages would have to be due to a future rise in air fares as MPPs have remained more or less constant. The United-Continental merger is expected to cause a rise in airline ticket prices, and thus lowers the likelihood that mainline pilots relax scope restrictions in return for higher wages. Moreover, the United and Continental pilot groups may demand higher wages in return for supporting the merger. However, if economic conditions cause airline ticket prices to fall, I have difficulty determining how mainline pilot groups will raise wages without a relaxation of scope conditions. Furthermore, a fall in air fares would increase the likelihood of bankruptcy for inefficient carriers, and present an opportunity for the imposition of relaxed of scope clauses.
The Delta scope conditions also contain an error (I just realized it); it is actually the number of aircraft that seat more than 70 passengers which may not exceed 255.
I am aware that no regional airline operates 108-seat jet aircraft; I write "30- to 108-seat jet aircraft" because the ERJ-195 is considered to be a regional jet.
Your point regarding future scope relief is debatable. Relief may be given for aircraft that seat 76-90 passengers; I agree that scope relief for aircraft that seat 90+ passengers is very unlikely.