Jetdeltamsy--I think you are oversimplifying TWA's financial problems by blaming the STL
TWA couldn't make money in the post-Icahn era(we all know why they didn't make money during his reign!) because it was saddled with debt and lousy credit rating due to the '92 bankruptcy. Icahn sucked over $1Billion out of TWA in 6 years. He also left it with $1B in debt. Carl said TWA was the worst investment he ever made. Save it Carl, the numbers tell the story.
Anyway, TWA operation after 1996 was extremely efficient and would have been profitable absent one factor--Carl Icahn, again. Because of the management debacle of the summer of '96(Flight 800 having very little to do with the near collapse of the company that summer) TWA had to go back to Carl (again because of the lousy credit rating--are you listening U and UA
?) to borrow money.
Carl, taking a cue from the Mafia, loaned us money but demanded tickets to sell in return. This was 1996. Before the widespread use of the internet in any capacity, let alone the travel industry. In fact, TWA did not foresee Carl selling--excuse me, dumping, tickets on the market via his own travel agency. Not in their wildest dreams did they foresee Carl selling on the internet.
So, Carl had an UNLIMITED NUMBER of TWA tickets to sell--AT 55% OF
FACE VALUE. That means TWA got 55% of the "list" price for a ticket from JFK
and Carl got to charge whatever he wanted and keep the difference. While the other airlines were keeping 100% of even their most discounted fares, TWA(having to match the other competitors) was getting 55%.
Additionally, while Carl was bleeding TWA, he was driving the price down for the competition. AA
buying TWA solved two problems. It gave relief to ORD
(now it seems ridiculous, but at the time...) AND they eliminated a major drain on yield.
was not inherently unprofitable. AA
may be able to make money there, but they don't need to operate a full hub at this time. I contend they will continue to have a large presence there(if only RJ
's) simply to keep the LCC's out.TC