Coyote Blog

I was reading about the DOJ push back on the proposed American-US Airways merger.  It strikes me that you never want to be the last merger in an industry consolidation.  When the consolidation begins, say with 8 players, a merger -- even if it results in a very big company -- reduces the number of competitors from 8 to 7.  After a while, though, the later mergers are proposing to reduce the players from, say, 4 to 3.  This will look worse to the DOJ, who by this point in a consolidation may be feeling remorseful, in retrospect, that it let some of the earlier deals go unchallenged.  So the last deal gets to catch up / payback from the earlier deals.

I think this is in part what is happening with the American merger.  I don't have the data, but my sense is that earlier mergers (e.g. United and Continental) were far more problematic from an anti-trust standpoint.

Disclosure:  living in Phoenix, whose US Airways hub will likely get downsized or eliminated in the merger, my life will be worse likely if the merger is approved.   Executives swear Phoenix will remain a major hub but most residents here consider this a "If you like your hub you can keep it" type promise.

from the AZ Republic:

A Yale University student is suing US Airways for $1 million because of the loss of a video game system he claims was taken from his luggage.

Ohio resident Jesse Maiman, 21, claims his Xbox 360 console was taken from his bag during a December flight from New Haven, Conn. to Cincinnati.

He is suing for $1,700 for the video game system and for the maximum damages allowable by law, or $1 million.

You can read the article all day and you will not find any extenuating circumstances to justify this arbitrarily absurd number.   Even $1,700 for the game system itself is absurd.  One hour of legal time on this would be worth more than the machine.

Michael Cannon writes about the new trend in airline pricing to charge extra fees for different services (ranging from sodas to checked baggage).  I have seen several writers of the progressive ilk all up in arms about these extra fees.  Which in my mind confirms that there is no foundational position among progressives on such matters, only opportunistic attacks on corporations for whatever they happen to be doing.  They want air travel pricing to be bundled into one rate, covering all potential services one may or may not use.  But wait, they want cable TV pricing to be unbundled, with a la carte pricing rather than one rate so viewers can pay for only what they use. 

Anyway, the only irritation I have with the new airline pricing is that it drives people to try to carry on every bag they can, particularly since, at least on US Airways currently, bags that are gate-checked are not charged a fee.  This is fouling up security lines and making it a necessity to board early on a plane to have any hope of finding a carry-on space.  Which may add another revenue opportunity, that of charging extra for the option to board early.  Which, come to think of it, Southwest is already doing.

US Airways has chosen to try to cover rising fuel prices by unbundling their ticket price and charging for services that were here-to-fore free, or built into the base ticket price.  They now charge $15 for the first piece of checked baggage ($25 for the second), and charge for most in-cabin services, including for soft drinks.

I'm not going to argue with them about this.  Airline pricing is a wickedly complex topic, and folks who know more than I do think this is the best way to get incremental revenue.  Really, these charges don't affect me (I almost never check bags, except when on vacation with my family).  In fact, as I write this, it strikes me that the baggage charge is really a price hike mostly on non-business travelers, which is interesting as it bucks the trend of having increasing price spreads over the years between business/last-minute and tourist pricing.

Anyway, the net effect has been to absolutely jam the security screening station this morning.  Every passenger seems to be carrying every bag he or she can on board to avoid the $15 charge.  What a mess.  I can't wait to see what the boarding process is going to be like.  Glad I don't have any bags today.

By the way, a few weeks ago I shipped a 60 pound trunk to my kids' camp for about $16 via UPS.  If these airline bag charges stick, it might be time for UPS to start soliciting the send-your-luggage-ahead business in earnest.  Next time we go skiing or some such place, I am going to seriously consider sending a couple of duffle bags ahead by UPS.

Update: The luggage bins were completely full before the fourth group out of six were called.  There was a fairly long line down the jetway of people gate-checking their bags.  Apparently, the airline is not set up to charge the $15 when they gate-check the bags, so everyone is hauling all of their bags to the gate and either bringing them on the plane or checking them at the gate for free.

I am sitting in the airport now about to fly back to Phoenix.  I generally fly America West / US Airways, because they have a hub in Phoenix and doing so maximizes my chance both of getting non-stop flights as well as accumulating a meaningful frequent flier balance with a singe airline.

After way too many round trips, I have the following observation:  I am much more likely to get an elite upgrade returning home than on the outbound leg.   I have seen this effect both flying the hub airline out of Phoenix and previously flying United out of Denver.   Now, as a hub city, Phoenix has a disproportionate number of US Airways elite members, just as Denver has a disproportionate number of United elite members.  So competing with a lot of other elite members for limited upgrade seats is understandable out of Phoenix, but shouldn't it be symmetric coming back?  I have three theories:

• Observer error, though I will say I have a fairly large number of observation points to many different cities from two different hub cities
• I am flying when the Elite's like to fly outbound, but I tend to take unpopular flights back.  Possible.  Most business travelers tend to fly outbound in the morning on the first flight, but they may all come back different times of day depending on their business.  This is one potential asymmetry.
• The airlines give preference on upgrades to through passengers.  I have never heard this, but it might explain it.  Outbound from a hub, many of the people on my flight are on the second flight, having just changed planes.  Going home, towards a hub, everyone is in the same boat as me, on their first leg.  I don't think the airlines differentiate, but this is the only other asymmetry I can come up with.

It looks like my local and state governments are gearing up to take money from my business and give it to US Airways.  Because, you see, politicians don't have problems in elections if they lose a few anonymous small businesses, but they do feel vulnerable if their city loses a major corporate headquarters:

Metropolitan Phoenix has not faced losing such a significant hometown
company since America West Airlines went bankrupt in 1991.

"The decision will be driven by what's in the best interest of
the stakeholders, which includes the creditors, the shareholders and
our employees," said C.A. Howlett, US Airways' senior vice president of
public affairs.

Tempe may have the hometown advantage, but Atlanta will no doubt vigorously and publicly fight to capture the headquarters....

Valley lawmakers, business leaders and economic development officials,
who have been largely silent in public, are having informal, quiet
discussions with the airline. They say they want to keep the
headquarters local but disagree about how to accomplish that goal and
when to move forward with a plan.

"I don't think we're at a phase where we should be panicking," said
Darcy Renfro, Gov. Janet Napolitano's policy adviser on higher
education and economic development. "The governor is very engaged.
We've jumped on this as soon as we could to make sure that we are
ready."

Even as Napolitano and Phoenix Mayor Phil Gordon plan to meet with US
Airways CEO Doug Parker, possibly this week, some maintain it is too
early to devise a strategy.

Just great.  If they don't want to stay, let them go.  They can have Atlanta.  I have lived both places and wouldn't move from Arizona to Atlanta for any reason.  By the way, the Arizona politicians are downright subdued in their response vs. this craziness from Atlanta:

Atlanta Mayor Shirley Franklin opposes the merger and recently blasted US Airways' customer service in a column in the Atlanta Journal-Constitution.

What theory of government could possibly make it Ms. Franklin's job to opine about the relative merits of various private company's products in her official capacity as mayor?  Why does the Atlanta city government need to have an official position on a merger of two private companies?  The last time I remember public authorities vociferously opposing a merger, it was the Pennsylvania government trying to stop (successfully, in the end) the buyout of local company Amp by AlliedSignal.  And what did this achieve?  It allowed Amp to be bought by Tyco, which has been rocked by scandal.  Pennsylvania stockholders who ended up with Tyco rather than AlliedSignal (now Honeywell) stock were much worse off several years later, as were Amp employees who traded AlliedSignal for Tyco as their boss.

One of the reasons I like Arizona is that we actually have a pretty strong libertarian streak here, going back to Barry Goldwater and extending today with Congressman Jeff Flake.  So I must admit that this made me feel better, and is something you would hear from a politician in very few states:

"We would like to have that company here, but it will not make or break
Arizona. We have companies that are moving all the time," said Barrett
Marson, director of communications for the Arizona House of
Representatives. "We're growing by leaps and bounds. Arizona does not
have many headquarters, but it does just fine, thank you very much."

I have written about government subsidies of corporate relocations here and here, among many other places.