If the BOD
are unhappy, why did they reject the merger with Mesa? Your statement seems inconsistent with the facts.
Like you, however, I continue to believe that ACA
is posturing. And, they are doing a good job of it. I can't wait to see their "make believe" livery for the new LCC. Whatever it takes to pressure United to give them the deal they want, I guess.
Either way you cut, I don't see how any of the recent developments benefit United.
1) If Mesa succeeds in taking over ACA
, overnight it would control about 46% of United Express capacity. How could that kind of leverage in the hands of one carrier be good for United? Sure, J. Ornstein (President of Mesa) is proud now of Mesa's being the lowest-cost RJ
operator among the independently-owned ones. But, with 46% of United's capacity, costs would be the least of his concerns. Rightly so, he's now touting the 7 to 10% profit margin that he thinks Mesa and ACA
can earn from the revenue guarantee code-share model. Who do you think will be guaranteeing and paying that profit margin? You got it. United. United hasn't figured out a way to make a 7% profit margin on its own. So, how paradoxical is it that despite having supposedly renegotiated its contracts with its regional affiliates (Mesa included) that one of them still claims that they will be earning a 7 to 10% profit margin. Mind you, that is the projected profit margin even if Mesa fails in its bid to takeover ACA
. Taking over ACA
, however, would give Ornstein all the leverage he would need to make good on that projection.
2) If ACA
remains independent, it could still patch up its relationship with United. The possibilty of Chapter 7 notwithstanding, United ain't going anywhere until at least 2010 as far as ACA
is concerned. That is at least what one can infer from United's claim in a press release this week that their contract with ACA
runs through 2010. What else can one infer? United no longer has the leverage it once had over ACA
. Threatening to reject the contract in the bankruptcy process doesn't mean much when you finally have to concede that until 2010 ACA
is committed to providing United Express Service. So the current contract will survive the bankrupty proceedings. If this were a game of poker, and in a way it is, United has effectively folded. Having won the game of bluff, the only remaining osbstacle to ACA
's and United's reaching an agreement is United's inevitable capitulation to ACA
's terms. Whatever those terms end up being, one thing is for sure: They will end up benefitting ACA
more than they benefit United.
3) If ACA
does transform itself into an LCC, Dulles could become a very inhospitable place for United. Yields would surely drop on many of the transcon flights and hub to hub flights that make the hub what it is. While UA
was in the process of rebuilding its feed at Dulles, the revenue on its European flights would take a hit as well. Given that it would be under duress to replace the ACA
feed, one also has to wonder what that would do to the costs of providing the service. I would hate to be negotiating with J. Ornstein under these conditions. He would have all the leverage, so much so in fact that I could see where he might get United to agree to charging-back the acquisition costs of the additional RJ
's. One of United's goals in bankruptcy was to cut the costs of its United Express capacity purchases. The situation at Dulles could quite easily make that goal impossible to achieve.