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How Does Everybody Feel About The ACA Plan?

Sun Oct 26, 2003 9:31 am

Generally, I figured that ACA's unveiling of their plans would get an incredible response, however, it seems the Concorde's final flight has obscured anything ACA has done...what does everybody feel about their plans, and a projection for the future for both ACA, United, and Dulles airport in general?
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RE: How Does Everybody Feel About The ACA Plan?

Sun Oct 26, 2003 9:34 am

I wish them the best of luck, try to reinvent themselves into a regional low-cost carrier will either result in great success (like Southwest) or, more likely, the death of the airline.

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RE: How Does Everybody Feel About The ACA Plan?

Sun Oct 26, 2003 11:27 am

I'll answer my questions regarding both airlines involved in order:

ACA: What, really, are they thinking? I truly don't believe that there is enough O&D traffic to feed what is truly little more than a United international gateway...United has 67 mainline flights from IAD, all to either Europe, hubs, or to feed European traffic...the 150-or-so ACA flights to IAD aren't really a good indicator of IAD's O&D traffic either, as they are primarily feeder flights for European/hubbed flights...I don't think ACA will make it as an LCC out of Dulles

United: A lot depends on whether Dulles is slot-controlled (somebody else please tell me if IAD is)...even with ACA taking 44 gates from United, United still will have the entire C concourse and a portion of D also, more than enough to maintain most of the current ACA route network. However, without the necessary slots, the planes can't take off, and would remain parked throughout the C concourse...if IAD is slot-controlled, UA might be smarter to cut their losses at IAD and cut off their right arm before it starts bleeding anyway. If IAD is not, Air Wisconsin can pick up the slack, and Dulles operation would keep going without a hitch...
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RE: How Does Everybody Feel About The ACA Plan?

Sun Oct 26, 2003 11:42 am

They certainly have high expectations. The proposed route maps on their web site are impressive.

I'd be worried about costs. CRJ's are not the cheapest planes to operate, so they may not prove to be cost effective on short, thin segments. Likewise, many East Coast markets have costly landing fees, labor costs, etc.

Dulles has been traditionally difficult as an O&D airport. It's often a pain in the neck to get to Dulles and it can be difficult to negotiate. True, ACA will use close-in gates, but Dulles is like Gatwick--Washingtonians roll their eyes at the idea of traveling from Dulles.

For a variety of reasons, Dulles has not been successful as a connecting point. Although many have tried, (Presidential, United, Metrojet,) none have thrived.

I'm afraid that ACA is starting too big. Likewise, they lack a specific niche in the low cost marketplace.

I'll be surprised and very impressed if this works out.
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RE: How Does Everybody Feel About The ACA Plan?

Sun Oct 26, 2003 11:57 am

It is known that the members of the Board of Directors at ACA are quite unhappy with current management regarding their rejection of the guaranteed profit business model for the proposed Low Cost Carrier. Though I have information on this matter which I can not reveal, I can confirm that representatives from ACA and United are still working with each other on a new contract. If the negotiations are successful, and I believe that they will be, I would expect an announcement by the end of next month on the continuing partnership between ACA and United.


RE: How Is United Airlines Doing?

Sun Oct 26, 2003 1:12 pm

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.
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RE: How Does Everybody Feel About The ACA Plan?

Sun Oct 26, 2003 1:37 pm


It is difficult to defend my position without being able to use confidential information however I can say that I have personally spoken with the highest authority at ACA and my statement was in line with his words. Being a VP at United I am intimately familiar with the facts of the situation and though I respect your difference in opinion I ask that you refrain from statements questioning my grasp of the situation.

The Board and shareholders have understandably taken issue with the plans to reject a guaranteed profit model. At the same time the Board considers ACA to be a superior company to Mesa, with greater potential for growth in the near term should they agree to a new contract with United. Additionally the Board was not pleased with the attitude of Mesa during this takeover attempt. The takeover will therefore be rejected. I wish that I could add additional details however I can not. There is a very high probability that a new contract between ACA and United will be signed within the next two months.

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RE: How Does Everybody Feel About The ACA Plan?

Sun Oct 26, 2003 3:16 pm

I consider the suggestion that ACA would start up a low cost carrier to be an example of absurd extortion. Much as the aspect of an RJ operated LCC intrigues me in terms of possible future application, there is a vital need for a major, global carrier with routes to Europe and Asia and a comprehensive domestic route network to be at IAD. United, in spite of their current financial difficulties, has all of these vital qualifications. If the ACA-UA contract is not resolved, and if there should be problems in setting up a replacement airline (slot/gate limitations etc) , could United sue ACA on any grounds? The need for the UA hub at IAD is absolute, as it contitutes an essential component of the national transport system, in my opinion.


RE: How Does Everybody Feel About The ACA Plan?

Wed Oct 29, 2003 9:30 am


Given United's current predicament, you could see why anyone, not just me per se, would feel entilted to question your or any United executive's grasp of the situation. In all frankness, it is not like we are trying decode the machinations of Bob Crandall's strategic mind during his glory days at AMR. Hardly anyone at United these days merits that comparison.

As to the matter at hand, in the last 24 hours much has transpired to draw into question the completeness, if not the veracity, of your insider information. First of all, in a press release today, United claimed that no new offers have been exchanged with ACA since October 16th. I could have claimed that negotiations broke off between the two on October 16th, but I am trying to paint their actual statement in the most favorable light. This is United's actual statement: "We [United] presented multiple enhanced offers to ACA and remained in discussions until October 16, a day prior to ACA's board meeting. However, ACA's management made clear that ACA -- not United -- would not negotiate further." You tell me how this statement can be reconciled at all with your claim that not only are negotiations continuing, but that they will likely result in an agreement in the next two months.

As to the rest of what I originally said, it probably has not gone unnoticed by you that my analysis of the situation predates that of a UBS analyst (Robert Ashcroft) who just yesterday claimed that "with such a concentration of business into one set of hands, United could find itself at Mesa's mercy when it comes time to negotiate contracts" ( Of course, those who read this thread already knew that because I argued that very point one day earlier.

Ashcroft also suggested that it was in the best interest of United that ACA remain an independent entity and that it sign a contract with United. Though I did not express my preference for this outcome, I did suggest that it was the most likely outcome given my belief that ACA was still posturing.

After ACA's actions today, however, one has to wonder where that leaves United even if ACA remains independent. This seems to be clear. United management was not wise to claim publicly that they were pursuing a deal as quickly as possible with Mesa should they succeed in taking over ACA. While this may have calmed United's creditors, it must have inflamed management over at ACA.

I still don't know how this is going to turn out. Above, I only attempted to show that whichever way this goes it is not likely to benefit United in the end. Instead of addressing those points, you chose to foreclose upon the conversation by telling me that you had a better grasp of the situation. Well, I gave you the benefit of the doubt. Today's events, however, seem to have called your entire position into question.
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RE: How Does Everybody Feel About The ACA Plan?

Wed Oct 29, 2003 10:21 am

IAD is not slot controlled...
UA has 38 gates between C&D and with only 70 or so Mainline flights a day there is plenty of room if they need to bring in another Express.
This should probably be another thread but with LV entering PHL what does anyone think about the possibility of US/UA operating a joint hub out of IAD or for that matter PHL it would eliminate basically the only overlap in the UA/US route structure and either beef up PHL or expand IAD.
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RE: How Does Everybody Feel About The ACA Plan?

Wed Oct 29, 2003 11:37 am


First off I would like to apologize for my harsh tone in my previous statement as it was unintended. It was not my aim to question your knowledge of the issue as you have very obviously done your homework. I can say that the opinions that I expressed in the previous two posts were in regard to a conversation with ACA on October 21. To be more accurate, at the time of the call, negations between our two companies had ceased though the possibility of further negations was not dismissed. This was in regard to Mesa’s offer for the company and their desire to solve more immediate issues first. Additionally my information came from a third party, a major associate of ACA, who was contacted on October 23. Our contact there expressed the opinion that “…Richard Surratt expects to sign new contract with United before month end…the Mesa takeover attempt would then be rejected. Goal is … for ACA to remain an integral part of the United regional jet program …plans to build an independent low-cost carrier would cease.”

Today’s actions by ACA were admittedly not expected. I have had no further interaction with anybody “in the know” on the situation since October 23. I would also like to retract a statement that I made regarding my grasp of the situation. At the time I posted my information was accurate as to what we knew at the time. As you have proven our information and expectations were not perfect. You have proven me wrong on some levels and have effectively cast the very accusation I made of you on me without ever saying so. All I can say is Bravo. I will not comment on the actions of media relations as I do not have sufficient information to make a statement which I would stand by. Should you ever find yourself in the Chicagoland area I would be more than happy to treat you to a drink.

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RE: How Does Everybody Feel About The ACA Plan?

Wed Oct 29, 2003 11:52 am

I support ACA's move despite its high-risk. ACA seems bound and determined on this plan and I think they'll proceed with it. Afterall, high-risk can bring high rewards! Go ACA!!
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RE: How Does Everybody Feel About The ACA Plan?

Wed Oct 29, 2003 12:51 pm

I have a different puzzle about the ACA plan. As I understand it, they have gates at IAD (and perhaps ORD?).

But how are they going to get gates in the most lucrative markets?

The LA area: they won't get in at SNA, LGB or BUR. I am told that gates at LAX are at an absolute premium.

Which leaves ONT.

Denver? We know the problems that DIA is having finding gates for F9 - basically, they haven't yet.

South Florida: I am told that FLL is a bunfight. CEO Neeleman has threatened to pull JetBlue out, in favor of Miami. He's talking about a new runway, but with a new runway comes even more pressure on gates.

There are gates at MIA, but here's the rub: MIA airport costs work out at $17.31 per passenger.

At FLL, those costs are under $4 per passenger (which may be one reason why FLL is so full.)

There are, of course, other places to fly, but those are the most heavily demanded destinations from the northeast.

There are other problems which are more complex. They plan to start the LCC with the RJ's they have and bring in 33 narrow bodies.

The RJ's have a high CASM, and they need the narrow bodies to bring that down.

But they haven't even placed the order yet. The lag time for Airtran is about a year from placing the order to getting delivery of the first plane.

Airbus similarly has a full delivery schedule. Some planes will always be available, but they won't get 33 within two years, even if they place the order tomorrow.

They could go used - I know of two ex-Ansett A320's sitting in Australia waiting for a home, and I'm sure there are others around the world. But used aircraft will also have a higher mx rate then new, and you don't get all those money saving warranties that keep JetBlue's mx costs so low.

Which means that the RJ, with it's high CASM, will be the bulk of their fleet for quite some time.

Now I could be wrong, I am not an airline CEO, I don't have a Harvard MBA but I have some trouble imagining a LCC operating successfully with a fleet of RJ's.


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