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Justice Dept. Alters View of Mergers by Airlines

August 14, 2013 by

To the Justice Department, a merger between American and US Airways would increase the fares and fees that have been steadily rising.

But to the airlines, the merger would lower costs and provide more flexibility for many travelers. What is more, some industry analysts said that a hobbled American, which is still trying to emerge from bankruptcy protection, would struggle to compete against the two giants, United Airlines and Delta Air Lines.

“What we are saying today is simply that they got this one wrong,” Richard Parker, a lawyer for US Airways, told reporters on Wednesday.

The Justice Department’s action comes after a decade of rapid consolidation in the airline industry, including the mergers of Delta and Northwest in 2008 and United and Continental in 2010. But antitrust officials said on Tuesday that despite the cost savings for the carriers from consolidation, domestic airfares, on average, had increased much faster than inflation over the last several years, prompting the department to revise its thinking about what was best for the consumer.

The Transportation Department has calculated that after adjusting for inflation, the average domestic airfare climbed to $379 in the first quarter of 2013 from $335 during the recession in 2009. And the fares varied greatly, often depending on the level of competition. For example, passengers in Huntsville, Ala., paid the highest fare, $543, in the first quarter while Atlantic City had the lowest, $169.

“I think the economics of the Justice Department is correct,” said George Hoffer, a transportation economics professor at the University of Richmond. “However, they are a day late and a dollar short. This should have been their decision in the Delta-Northwest case.”

But Mr. Hoffer said the airlines could prevail in court because the earlier mergers created “a structural disequilibrium” in the industry, with United and Delta having more flexibility to reroute passengers, especially lucrative corporate customers, when trouble arises.

Another issue is American’s ability to compete as a stand-alone airline. The Justice Department’s Antitrust Division argued that American could come out of bankruptcy as a strong competitor without the merger. It pointed to American’s order of 460 new airplanes over the next decade, worth $38 billion and billed as the largest single order in history, as well as its recent return to profitability.

But some financial and aviation analysts see it differently. American’s domestic network and hubs are considered weaker than Delta’s or United’s, and its international network is smaller. The airline is also part of Oneworld, the smallest of the three global airline alliances. American, which is owned by A.M.R., cut its costs through bankruptcy, but it did little to bridge the gap in revenues with its peers, which can command higher fares and attract more business travelers.

“Apparently, the Justice Department takes the position not held by most analysts, who viewed A.M.R.’s proposed stand-alone plan as unlikely to be competitive or to succeed,” said Robert W. Mann, an aviation consultant.

If the merger is blocked, the clear winners will be United and Delta, which have global ambitions, some analysts say. A smaller American will struggle to attract business travelers with its smaller domestic network and smaller international footprint.

John Godyn, an airline analyst at Morgan Stanley Research, wrote in a note to investors that Delta and United “would have a duopoly on corporate travel, superior networks and more valuable frequent flier programs.”

Professor Hoffer, however, said that American had done enough cost-cutting in recent years to hold on to its spot as the nation’s fourth-largest carrier. “Because the industry is more concentrated, it would be easier for American to raise capital and grow itself,” he said.

Article source: http://www.nytimes.com/2013/08/15/business/justice-dept-alters-view-of-mergers-by-airlines.html?partner=rss&emc=rss

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The Haggler: Tracking a Child Support Mix-Up In New York

May 25, 2013 by Leave a Comment

There are surveys that cover just about every aspect of air travel: rates of on-time departures, rankings of frequent-flier programs, and on and on. But the Haggler has never seen a study that shows which airlines regard fliers as the biggest idiots.

Huge omission, right? And until a thorough inquiry is undertaken, the Haggler contends that US Airways takes the dimmest view of its customers’ intelligence. On what evidence is that conclusion based? When you call the airline’s reservation number, the first utterance you hear after you shimmy up the phone tree and await a representative is this:

“Note that under federal law, passengers are prohibited from bringing hazardous materials on the aircraft.”

Is there a sentient human on this planet who is unaware that bringing hazmat on a jet is verboten? Is it not self-evident that loading up your baggage with potentially lethal, flammable and/or toxic chemicals is uncool, not to mention illegal?

The most charitable explanation here is that US Airways is just trying to kill some time by filling your ears with factoids, as you stew on hold. But being called a dummy, by implication, doesn’t make the stewing more pleasant. Quite the opposite. Why not just remind us to wear clothing to the airport? Or to walk upright?

The Haggler posed these questions to US Airways, mostly because he can. A spokesman, John McDonald, wrote back and noted that a lot of passengers have no idea how many everyday items are considered hazmat by the Federal Aviation Administration. He listed some: spare curling-iron gas cartridges, dry ice in an airtight container, a can of aerosol spray starch, loaded firearms.

The loaded firearms — not really a surprise. But the others are.

“Our friendly little reminder on the start of the call,” Mr. McDonald wrote, “is just to pique interest, as it did with you, to ask the question: What is hazmat?”

Respectfully, as an interest piquer, the “little reminder” stinks. So here’s some free advice: Bag the little reminder and give callers a list of the surprising items that are banned. Or list eight items that might be hazmat and challenge callers to pick out the one that isn’t.

“Great idea,” wrote Mr. McDonald, effectively neutralizing the Haggler with cheap praise. “I’ll pass it along to our reservations team.”

Problem all but solved.

Question: Is there any way to improve the world that is too trivial for the Haggler?

Apparently not!

Enough of this folderol. It’s question time.

Q. I am a single mother, and my case does not involve bad corporate customer service but rather the seemingly impenetrable New York City Office of Child Support Enforcement that has for months now miscalculated the child support arrears owed by my daughter’s father.

An order was issued by family court on Nov. 30, 2012, specifying that the support collection unit of the O.C.S.E. was to assess the father’s arrears at $12,568 plus the previously calculated arrears, which were $7,439. Instead of adding the new arrears to the old, as instructed by the court order, the O.C.S.E. substituted the new arrears of $12,568 for the previously calculated arrears of $7,439. An amended order was issued on Jan. 8, 2013, in an attempt to be clearer for the O.C.S.E.’s employees.

The amended order came only after I spent five hours speaking with eight different people in two different buildings.

But the new order didn’t help. Yet again, the O.C.S.E. simply substituted the new arrears of $12,568 for the previously calculated arrears of $7,439.

I have spent the past four months doing everything within my power to rectify this situation, and I have failed. If I were to seek legal counsel to help me, I’d be spending thousands of dollars to try to get a state bureaucracy to do its job enforcing a court order. The $7,439 that I am trying to get would be spent in legal fees.

If you would consider trying to intervene on my behalf, I would be more grateful than you could know.

L.G.

New York

A. The Haggler has spent little time dealing with the public sector, so he sent an e-mail to Bill de Blasio, the city’s public advocate. Mr. de Blasio, who is seeking the Democratic nomination for mayor, runs an office that mediates between the electorate and the city government. He handed off this matter to a staff member, Phil Walzak, who brought in the office’s director of constituent services, America Canas.

The pair went at this for several weeks. On April 23, Mr. Walzak wrote to say, “Still gathering the details on this case, but my constituent services person says the case outcome is actually positive.”

The Haggler spoke to Mr. Walzak and Ms. Canas a few days later, and they were low on details about what exactly went wrong at the Human Resources Administration, home of the O.C.S.E.

“Why it got screwed up at the front end, we don’t know,” Mr. Walzak said.

“A little bit of a missed communication,” Ms. Canas speculated, “and a lot of emotion.”

The leaders at the Human Resources Administration did not offer much more illumination. A spokeswoman, Carmen Boon, initially suggested that this entire matter was fed to the Haggler by the public advocate’s office, presumably to make that office seem like heroes. (Untrue.) Then she e-mailed a statement.

“This is a very rare instance in which an unconventional court order lacking proper terminology and not identifying a specific dollar amount to add back to the arrears balance caused confusion among our staff,” Ms. Boon wrote. “Once the issues with the order were detected, H.R.A. worked as quickly as possible to update the amounts owed and fix this unfortunate situation.”

It would nice to file this entire affair under the category of “learning experience.” But nobody here seems to have learned anything. Other than the Haggler, who learned that he much prefers dealing with the private sector, where blame-pinning is invariably far easier.

E-mail: haggler@nytimes.com. Keep it brief and family-friendly, include your hometown and go easy on the caps-lock key. Letters may be edited for clarity and length.

Article source: http://www.nytimes.com/2013/05/26/your-money/tracking-a-child-support-mix-up-in-new-york.html?partner=rss&emc=rss

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DealBook: Confidence on Upswing, Mergers Make Comeback

February 14, 2013 by Leave a Comment

William Johnson, left, the chief of H.J. Heinz, and Alex Behring, a managing partner at 3G Capital.Keith Srakocic/Associated PressWilliam Johnson, left, the chief of H.J. Heinz, and Alex Behring, a managing partner at 3G Capital.

The mega-merger is back.

For the corporate takeover business, the last half-decade was a fallow period. Wall Street deal makers and chief executives, brought low by the global financial crisis, lacked the confidence to strike the audacious multibillion-dollar acquisitions that had defined previous market booms.

Cycles, however, turn, and in the opening weeks of 2013, merger activity has suddenly roared back to life. On Thursday, Berkshire Hathaway, the conglomerate run by Warren E. Buffett, said it had teamed up with Brazilian investors to buy the ketchup maker H. J. Heinz for about $23 billion. And American Airlines and US Airways agreed to merge in a deal valued at $11 billion.

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Those transactions come a week after a planned $24 billion buyout of the computer company Dell by its founder, Michael S. Dell, and private equity backers. And Liberty Global, the company controlled by the billionaire media magnate John C. Malone, struck a $16 billion deal to buy the British cable business Virgin Media.

“Since the crisis, one by one, the stars came into alignment, and it was only a matter of time before you had a week like we just had,” said James B. Lee Jr., the vice chairman of JPMorgan Chase.

Still, bankers and lawyers remain circumspect, warning that it is still too early to declare a mergers-and-acquisitions boom like those during the junk bond craze of 1989, the dot-com bubble of 1999 and the leveraged buyout bonanza of 2007. They also say that it is important to pay heed to the excesses that developed during these moments of merger mania, which all ended badly.

A confluence of factors has driven the recent deals. Most visibly, the stock market has been on a tear, with the Standard Poor’s 500-stock index this week briefly hitting its highest levels since November 2007. Higher share prices have buoyed the confidence of chief executives, who now, instead of retrenching, are looking for ways to expand their businesses.

A number of clouds that hovered over the markets last year have also been removed, eliminating the uncertainty that hampered deal making. Mergers and acquisitions activity in 2012 remained tepid as companies took a wait-and-see approach over the outcome of the presidential election and negotiations over the fiscal cliff. The problems in Europe, which began in earnest in 2011, shut down a lot of potential transactions, but the region has since stabilized.

“When we talk to our corporate clients as well as the bankers, we keep hearing them talk about increased confidence,” said John A. Bick, a partner at the law firm Davis Polk Wardwell, who advised Heinz on its acquisition by Mr. Buffett and his partners.

Mr. Bick said that mega-mergers had a psychological component, meaning that once transactions start happening, chief executives do not want to be left behind. “In the same way that success breeds success, deals breed more deals,” he said.

A central reason for the return of big transactions is the mountain of cash on corporate balance sheets. After the financial crisis, companies hunkered down, laying off employees and cutting costs. As a result, they generated savings. Today, corporations in the S. P. 500 are sitting on more than $1 trillion in cash. With interest rates near zero, that money is earning very little in bank accounts, so executives are looking to put it to work by acquiring businesses.

The private equity deal-making machine is also revving up again. The world’s largest buyout firms have hundreds of billions of dollars of “dry powder” — money allotted to deals in Wall Street parlance — and they are on the hunt. The proposed leveraged buyout of Dell, led by Mr. Dell and the investment firm Silver Lake Partners, was the largest private equity transaction since July 2007, when the Blackstone Group acquired the hotel chain Hilton Worldwide for $26 billion just as the credit markets were seizing up.

But perhaps the single biggest factor driving the return of corporate takeovers is the banking system’s renewed health. Corporations often rely on bank loans for financing acquisitions, and the ability of private equity firms to strike multibillion-dollar transactions depends on the willingness of banks to lend them money.

For years, banks, saddled by the toxic mortgage assets weighing on their balance sheets, turned off the lending spigot. But with the housing crisis in the rearview mirror and economic conditions slowly improving, banks are again lining up to provide corporate loans at record-low interest rates to finance acquisitions.

The banks, of course, are major beneficiaries of megadeals, earning big fees from both advising on the transactions and lending money to finance them. Mergers and acquisitions in the United States total $158.7 billion so far this year, according to Thomson Reuters data, more than double the amount in the same period last year. JPMorgan, for example, has benefited from the surge, advising on four big deals in recent weeks, including the Dell bid and Comcast’s $16.7 billion offer for the rest of NBCUniversal that it did not already own.

Mr. Buffett, in a television interview last month, declared that the banks had repaired their businesses and no longer posed a threat to the economy. “The capital ratios are huge, the excesses on the asset aside have been largely cleared out,” said Mr. Buffett, whose acquisition of Heinz will be his second-largest acquisition, behind his $35.9 billion purchase of a majority stake in the railroad company Burlington Northern Santa Fe in 2009.

While Wall Street has an air of giddiness over the year’s start, most deal makers temper their comments about the current environment with warnings about undisciplined behavior like overpaying for deals and borrowing too much to pay for them.

Though private equity firms were battered by the financial crisis, they made it through the downturn on relatively solid ground. Many of their megadeals, like Hilton, looked destined for bankruptcy after the markets collapsed, but they have since recovered. The deals have benefited from an improving economy, as well as robust lending markets that allowed companies to push back the large amounts of debt that were to have come due in the next few years.

But there are still plenty of cautionary tales about the consequences of overpriced, overleveraged takeovers. Consider Energy Future Holdings, the biggest private equity deal in history. Struck at the peak of the merger boom in October 2007, the company has suffered from low natural gas prices and too much debt, and could be forced to restructure this year. Its owners, a group led by Kohlberg Kravis Roberts and TPG, are likely to lose billions.

Even Mr. Buffett made a mistake on Energy Future Holdings, having invested $2 billion in the company’s bonds. He admitted to shareholders last year that the investment was a blunder and would most likely be wiped out.

“In tennis parlance,” Mr. Buffett wrote, “this was a major unforced error.”

Michael J. de la Merced contributed reporting.

Article source: http://dealbook.nytimes.com/2013/02/14/confidence-on-upswing-mergers-make-comeback/?partner=rss&emc=rss

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On the Road: Airline Fees Trip Up Corporate Travel Managers

September 13, 2011 by Leave a Comment

“It mystifies me because every time I check in on the Web, like a day in advance of my flight, there’s something more they’re offering me,” she said. “Sometimes you need to go through three or four screens with offers: Do you want to double your frequent-flier miles for this trip? Do you want to board early? There are so many choices,” said Ms. Trotochaud, a senior director at Concur.

Of course, the proliferation of offers for services that carriers once provided as part of the base fare is no accident. Airlines around the world pocketed an estimated $21.46 billion in revenue from the fees for those services last year, according to research by Amadeus and IdeaWorks. For many airlines, fees for checked bags ($3.4 billion last year in the United States alone), and various services like front-of-line boarding, up-front aisle seating, and in-flight meals mean the difference between profit and loss.

Airlines have been charging some fees for a long time, but began aggressively expanding them only in 2008, when they started charging for most checked bags.

That’s not going to change. So we might as well stop complaining about the fees.

Corporate travel managers have gotten to that point, and they are now just trying to “get their arms around them” for better budgeting and planning, said Ms. Trotochaud, who is a member of a working group, called the Airline Ancillary Product Global Task Force, of all the businesses involved in the buying and selling of air travel.

For their part, airlines say they want to provide as much transparency as possible for their fees. But doing so is difficult because there is no standard method of classifying and selling their for-fee services. “One problem is, we airlines have a lot of products we want to sell you,” Doug Parker, the chief executive of US Airways, told corporate managers last month at the convention of the Global Business Travel Association in Denver.

There has been a lot of confusion about fees in general, incidentally. Some estimates, widely reported, claim that fees represent as much as 20 percent of the cost of a typical business trip. But industry experts I talk to say that fees account for at most 9 percent of corporate air travel spending.

The problem for companies and their traveling employees is that the myriad computer systems for travel booking, credit card reporting and company expense management don’t all speak the same language. And, as Ms. Trotochaud pointed out, a $50 airline fee listed on a business traveler’s corporate credit card report could be for two checked bags or a one-day pass to an airline lounge. The checked bag charges may be allowable under company policy; the lounge pass may not.

“The challenge is to get a better picture of that transaction,” she said. That’s easier said than done, of course, because not only is there no uniform standard for describing and listing fees, there is none for budgeting for them in advance or managing them later when an expense account is filed.

Also, many corporate travel departments still haven’t drafted policies on fees. “Companies now need to figure out which things are reimbursable, and which are not,” she said. “Then they need to educate their travelers, so that when those travelers are making decisions along the way they’ll know what’s going to be reimbursed and what’s coming out of their pockets,” she added.

Drafting sensible and clear reimbursement policies is important, Ms. Trotochaud said, pointing to a recent study by the travel research firm PhoCusWright that found that only about a quarter of travel managers had communicated to employees a clear policy about travel expense reimbursement.

Without clear policies, she said, “the onus is on the traveler” to guess, sometimes when checking in at the airport on the day of travel, whether a fee for a certain service may be disallowed later.

“The reality is that most travelers are not booking far in advance,” she said. “They might not even know until the day of travel whether they might need to check a bag. And there are those transactions that happen when you’re checking in online or at the airport, or even on board the plane.”

She added, “I think companies struggle with what fees are reasonable to reimburse. But I also think business travelers are confused about what’s allowed and what isn’t.”

E-mail: jsharkey@nytimes.com

Article source: http://feeds.nytimes.com/click.phdo?i=9991e4dc8a66b43eaaece096b4d5be3d

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