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AA Buying TWA – Thought Process?  
User currently offlineUnitedFirst From United States of America, joined Jun 2001, 478 posts, RR: 2
Posted (11 years 5 months 2 weeks 5 days 6 hours ago) and read 2341 times:

Granted, American purchased TWA prior to September 11th. However, my curiousity lies in what their goal in the purchase was? To regain status as the largest airline in the world (which I suppose makes sense, granted the disaster that was UA-US...)? To develop yet another midwest hub? Or was it to simply purchase slots that TWA had (of course, if that were the reason, then there must be some real problems at AA...)?

I'm a United-boy at heart – however, I have no qualms admitting the fact that American certainly provides a competitive product. Therefore, I'm certainly not just AA-bashing here.

I'd just like to know exactly what the thought process was leading up to the purchase of TWA. I mean, as far as I remember, the economy was slowing-down at that point – and as far as I'm concerned, is it not a BIG boo-boo to make superfluous (correct me if I'm wrong, here...) purchases during times like those?

I just see a lot of irony in the fact that AA is now disposing of something it spent a lot of money on (ie, the amount of routes that will almost certainly halt as of next week...).

Comments are appreciated (positive and negative!)  Smile

-Derek

17 replies: All unread, jump to last
 
User currently offlineTekelberry From United States of America, joined May 2003, 1459 posts, RR: 4
Reply 1, posted (11 years 5 months 2 weeks 5 days 5 hours ago) and read 2321 times:

I just see a lot of irony in the fact that AA is now disposing of something it spent a lot of money on (ie, the amount of routes that will almost certainly halt as of next week...).

Whoa whoa whoa whoa whoa...hold up there. AA hasn't announced ANYTHING. As far as we know, AA could close the DFW hub according to that press release. Although that would never happen, that's what the press release is saying. You're just assuming that AA is going to cut STL ops which might not be the case.


User currently offlineInflightmags From United States of America, joined Jun 2003, 103 posts, RR: 0
Reply 2, posted (11 years 5 months 2 weeks 5 days 5 hours ago) and read 2315 times:

I think one of the many reasons was to ease congestion in AA's O'Hare hub. That is one reason they bought TW.

But in opinion, the airlines being bought by AA are totally blind...Look at AirCal, and QQ (and now TW)..where are the majority of their routes now and how about the number of their employees now working for AA???



User currently offlineTWFirst From Vatican City, joined Apr 2000, 6346 posts, RR: 51
Reply 3, posted (11 years 5 months 2 weeks 4 days 21 hours ago) and read 2195 times:

1) They eliminated a competitor
2) They obtained valuable assets - route authorities, slots, gates, etc.
3) Room to grow (STL as a reliever for ORD/DFW)
4) And they got it all for a song. The TW ops were generating positive cash flow at the time of the acquisition. AA acquired everything out of bankruptcy court. Granted, TW labor costs went up when merged with AA due to AA bringing TW workers up to AA wages, but that was mitigated by AA renegotiating all of TW's very expensive leases, and laying off much of the TW workforce. AA wasn't obligated to assume all of TW's liabilities - remember they acquired the assets out of bankruptcy court.... that was the beauty of the bankruptcy filing.

SO, although I loved TWA and still can't believe they're gone, I think it was a good business decision on AA's part.



An unexamined life isn't worth living.
User currently offlineCody From United States of America, joined May 1999, 1932 posts, RR: 9
Reply 4, posted (11 years 5 months 2 weeks 4 days 20 hours ago) and read 2166 times:

I think the main reason was, AA wanted STL as a reliever, but also it allowed them to take the leisure-type traveler through STL while the more expensive business fares went through ORD and DFW. Also, getting rid of Karabu (Carl Ichan's TWA agreement) helped everyone because it eliminated that website for cheap tickets. I think getting the international route authorities, LGA and DCA slots was just gravy.

It all backfired on 9-11. The high paying last minute travelers, who were supposed to be going through ORD and DFW flat out refused to pay those higher prices. Plus, vacationers became scared to travel. So now we have three hubs that pretty much mirror each other sitting in the midwest.

If AA wants to keep all three hubs, maybe they could transform ORD into sort of a focus city concentrating only on O & D traffic. DFW could become the coast to coast connecting hub, transferring passengers from major west coast cities to the major cities of the east and Europe. STL could be the hub that brings the big towns of both coasts to the smaller communities in the midwest, but then, you end up taking away aircraft that could do that anyway from ORD. I don't know.......seems like STL may not be of use to AA anymore.

As for the past mergers. I guess the AirCal deal was just one of those things that was a good idea at the time, but then after a few years was no longer valid. The Reno Air purchase I always though was for Reno's infrastructure...........not necessarily their routes, just gates, ticket counters and employees. The majority of the Reno and AirCal people still remain with AA to this day. Unfortunately, TWA may be a different story.


User currently offlineLuv2fly From United States of America, joined May 2003, 12150 posts, RR: 49
Reply 5, posted (11 years 5 months 2 weeks 4 days 20 hours ago) and read 2129 times:

I think that AA bought them for the reason not only to remain the largest carrier, it was prior to 9-11 and who would have thought the changes we have seen would have happened. Now I see STL and AA being held on to for a while as it transforms to more RJ's and the mainline jets to the key cities. If that works it will remain that way, if the economy remains weak and the flights are harder to fill then I could see them pulling out completely.


You can cut the irony with a knife
User currently offlineRedngold From United States of America, joined Mar 2000, 6907 posts, RR: 44
Reply 6, posted (11 years 5 months 2 weeks 4 days 15 hours ago) and read 2041 times:

1. Eliminate competition
2. Eliminate competition
3. Eliminate competition
4. Eliminate competition
5. Lord it over UA that they're now the largest airline in the world
6. Did I mention, eliminate competition?


redngold



Up, up and away!
User currently offlineSTT757 From United States of America, joined Mar 2000, 16907 posts, RR: 51
Reply 7, posted (11 years 5 months 2 weeks 4 days 14 hours ago) and read 1984 times:

"Eliminate competition"

TWA would have been eliminated naturally within a year, even without 9-11.



Eastern Air lines flt # 701, EWR-MCO Boeing 757
User currently offlineTWFirst From Vatican City, joined Apr 2000, 6346 posts, RR: 51
Reply 8, posted (11 years 5 months 2 weeks 4 days 14 hours ago) and read 1974 times:

You don't know that. Hindsight is 20/20. However, if AA believed that, then it makes even more sense that they came to the agreement they did with TW. If TWA went into Chapter 7, it would have been carved up piecemeal by several competitors. The way it happened, AA was able to prevent the competition from obtaining TW's valuable assets.


An unexamined life isn't worth living.
User currently offlineLuv2fly From United States of America, joined May 2003, 12150 posts, RR: 49
Reply 9, posted (11 years 5 months 2 weeks 4 days 14 hours ago) and read 1975 times:

Yes tho at the time known of us knew 9-11 was going to happen.


You can cut the irony with a knife
User currently offlineGoingboeing From United States of America, joined Dec 1999, 4875 posts, RR: 16
Reply 10, posted (11 years 5 months 2 weeks 4 days 14 hours ago) and read 1976 times:

How about this one then:

1. Increase market share
2. Increase market share
3. Increase market share
4. Increase market share
5. Lord it over UAL that they are now the largest airline in the world

Too bad nobody told them that market share alone doesn't necessarily pay the bills - they had to have profits to go with it.


User currently offline727LOVER From United States of America, joined Oct 2001, 6624 posts, RR: 20
Reply 11, posted (11 years 5 months 2 weeks 4 days 12 hours ago) and read 1904 times:

The way I remember, didn't AA and UA broker a deal, where they would split the shuttle, sell 20% of US to AA, and AA would buy TW.


I feel woozy....what did you put in that Pudding Pop?
User currently offlineLuv2fly From United States of America, joined May 2003, 12150 posts, RR: 49
Reply 12, posted (11 years 5 months 2 weeks 4 days 11 hours ago) and read 1876 times:

I think the deal you speak of had more to do if UA was allowed to buy US! It had to do with slots at DCA and selling them to a new airline being formed again based on of the sale went through, although I remember something about the shuttle I just can not remember exactly what it was.


You can cut the irony with a knife
User currently offlineETA Unknown From Comoros, joined Jun 2001, 2089 posts, RR: 0
Reply 13, posted (11 years 5 months 2 weeks 4 days 10 hours ago) and read 1828 times:

TWA was notorious for starting fare wars and I believe AA's thinking at the time was buying TWA was a cheap way of getting rid of it.

User currently offlineFlashmeister From United States of America, joined Apr 2000, 2903 posts, RR: 6
Reply 14, posted (11 years 5 months 2 weeks 4 days 9 hours ago) and read 1801 times:
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I hardly think that the entire reasoning behind the TWA purchase was to avoid fare wars -- it was clearly a response to the US-UA deal and other consolidation that was going on, and a hope that bigger = more profitable...

TWA would have indeed died as a result of 9/11, but no one was exactly forecasting what would happen...


User currently offlineSllevin From United States of America, joined Jan 2002, 3376 posts, RR: 6
Reply 15, posted (11 years 5 months 2 weeks 4 days 9 hours ago) and read 1790 times:

You don't know that. Hindsight is 20/20

Actually, we *do* know that. There was no other auitor for TWA, and they were down to a handful of days before shutting down. That's why the whole Chapter 11 filing, etc., went so cleanly -- because TWA wasn't worth anything and was going to halt.

TWA was the company stating they would have to shut down. Not analysts, etc.

Obviously, in hindsight, AA should have let them close shop -- but who knew that 9/11 was coming?

Steve


User currently offlineSTT757 From United States of America, joined Mar 2000, 16907 posts, RR: 51
Reply 16, posted (11 years 5 months 2 weeks 4 days 8 hours ago) and read 1771 times:

"You don't know that "

But everyone knew that TWA had not made money for atleast 10 years (or more), and at the time of the takeover it was obvious that the Country was in a recession (prior to 9-11), TWA got through the late 1980s-early 1990s by the skin of their teeth.

It was obvious that TWA was in serious trouble, they knew it that's why the CEO was openly shopping the Company around at the time.

It was the only way to save jobs, and AA bought it hook line and sinker.

It saved TWA jobs for about 3 years, which is a good thing for the former TWA employers but a bad thing for AA/AMR , their employees and their investors.



Eastern Air lines flt # 701, EWR-MCO Boeing 757
User currently offlineYyz717 From Canada, joined Sep 2001, 16368 posts, RR: 56
Reply 17, posted (11 years 5 months 2 weeks 4 days 8 hours ago) and read 1752 times:

TW was in its death throes when AA bought it. It would have been cheaper to simply expand into STL internally.




Panam, TWA, Ansett, Eastern.......AC next? Might be good for Canada.
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