Sponsor Message:
Civil Aviation Forum
My Starred Topics | Profile | New Topic | Forum Index | Help | Search 
The Role Of Mergers In The US Airline Industry  
User currently offlineWorldTraveler From , joined Dec 1969, posts, RR:
Posted (7 years 10 months 2 weeks 4 days 8 hours ago) and read 6920 times:

US’ proposed acquisition of DL has attracted a lot of attention among the usual crowd of people arguing for consolidation – even if the business fundamentals do not make any sense. Part of the reason for all the excitement is obvious: more money is made in the airline industry by doing a deal than by operating an airline. Yet as the US deal sputters and the progosticators begin to admit that it might not happen after all, it’s time to look at the role mergers have and likely will play in the industry.

First, let’s break airline mergers into three categories. There are mergers of distressed or failing airlines, although most often those become asset acquisitions. The industry has had several of these and generally the best assets have been picked out and the rest of the former airline thrown away. Though not kind to much of anyone, these types of mergers will continue because there is always the hope that a white knight will save even a little bit of a failing airline even though history shows that very little of the distressed carrier actually survives. Secondly, we have had friendly mergers of two viable airlines. These became widespread in the late 80s when a number of mainline airlines without nationwide networks combined to form a couple of nationwide carriers. Although these are the best case for when mergers should work, few have. Delta’s acquisition of Western has been called one of the best mergers in the industry and NW’s acquisition of Republic allowed two airlines with limited regional presence to become a significant force in the marketplace. Third, there have been a few attempts at hostile takeovers. However, there isn’t one case in the US airline industry of a successful hostile takeover. Perhaps that’s why Doug Parker is starting to backpedal… financiers aren’t willing to risk billions of dollars when it can easily evaporate at the hands of disgruntled employees – who have been responsible for destroying millions of dollars in the global airline industry.

Second, let’s look at what it takes to combine two airlines. Traditionally, one of the two airlines has had to have above average financial performance in order to get the financing necessary to make a merger work. As credit quality in the US overall has deteriorated, banks are willing to engage in riskier and riskier loans. History shows that loans to the airline industry have been some of the riskiest. Any attempt to combine carriers has to come with pretty compelling plans to safeguard the airline and payback the loans. Historically, airlines have justified mergers by reducing overhead and simplifying operations. Nearly all successful, lasting mergers in the industry have been end-on-end type mergers or those between airlines where the sum of the two previous airlines creates a new airline that is stronger than either of the two airlines were alone. Reducing capacity has usually not been a compelling force for combining airlines.

Because US Airways didn’t want to say it was laying off people and can’t simplify operations much because of the vastly differently fleets, it went to the newest justification for mergers which is to reduce capacity even though saying that sets off all kinds of red flags at governments and consumer groups. The red flags are accompanied by fireworks when that kind of talk is made about two carriers that have heavy overlap as US and DL do. The fallacy of reducing capacity to improve profitability is that what one carrier gives up will be taken over by another carrier. The slobber running down the face of Southwest, AirTran, and JetBlue execs at the prospect of picking up access to key Northeast assets shows that capacity will not go away – except to small cities where there will not be any LFCs ever - and therefore the merger benefit from reducing capacity won’t work in the largest markets and the political backlash will prevent it in the smallest markets. In fact, while network carriers have been very careful about reducing capacity and limiting capital expenditures, low fare carriers today have made huge commitments to new aircraft that can only be used to replace capacity network carriers will get remove. Where it can work is in small and medium sized markets where LFCs won’t go but if there is any significant overlap in those small cities between the merger candidates, regulators will nix the deal as consumers cry out to stop any attempts at raising fares solely for the purpose of fattening profits. If the combined carrier gains excessive market dominance – which is certain to happen in small cities surrounding the hubs of two carriers in the same region - the merger has a very little chance of occurring. It’s easy and perfectly legal for an airline to remove capacity from its own system but it’s very difficult to remove capacity from a combined carrier and get it past regulators and consumers unless there is a compelling case to be made that the industry cannot survive with existing capacity levels.

So what is the state of the industry today? Let’s go back to United’s rejected ATSB loan application in 2003. It was then that the Government Accounting Office told the airline industry that bankruptcy should be the primary tool used by the struggling airline industry to turn itself around. Government subsidies would not be given out. It is against that backdrop that 4 out of the 6 network carriers that existed in 2003 have now been through bankruptcy. Something strange happened in bankruptcy during this business cycle. While bankruptcy historically has translated into a high mortality rate for airlines, United emerged successfully and Delta and Northwest are on track to emerge successfully as well. Only the old USAirways was unable to successfully restructure despite two trips through bankruptcy, leading to its acquisition by America West. Most airlines have learned that it is indeed possible to survive bankruptcy but there are very different strategies of how to get there. Some actually restructure their operations and networks and become viable – such as CO did during the 90s – and others just keep reducing capacity and slashing costs, a strategy that produces great short-term results but leaves the airlines that use that strategy highly vulnerable since capacity doesn’t leave the industry but is instead just transferred to other carriers. Successful airlines know that you have to maintain a strong presence in key markets or expect to see major competitors move into its markets. Is it any wonder that US Airways under Doug Parker has seen more new service and more new carriers added to US hubs by competitors than at any other airline since 2001?

And now, even though two network airlines are still operating in bankruptcy, every one of the six network carriers has reported profits of some kind during the past year. Since the airline industry has never been consistently profitable, few would argue that the airlines are in trouble at this point. No one in Washington even expects airlines to be as profitable as other industries – they just want them to provide reliable, cheap service. Intracity mass transit is heavily subsidized in the US; airlines are just viewed as intercity mass transit that is privately subsidized. Nonetheless, US characterized DL as a failing carrier in an attempt to provide justification for the transaction. In reality, only the original US was failing and had to be combined with America West if thousands of jobs were to be saved and in order to keep a huge vacuum from developing in the eastern US. DL’s reorganization has been so successful that it has reached its targets and restructured its airline faster and more dramatically than any airline, all while rebuilding DL to be a viable long-term competitor, all the while hitting financial targets and having the cost of its DIP financing reduced three times in less than a year. DL has benefited from a strong environment and today airlines across the board are reporting higher fares and load factor increases, hardly the kind of environment to use when trying to convince regulators and consumer groups that capacity needs to be removed in order airlines to survive.

So when can mergers survive, you ask? Distressed mergers will always be given priority even though there is little evidence they succeed since asset sales usually are used to transfer the best assets and to gain the best return for the distressed carrier. Since no airline is currently anywhere near the point of being distressed, these types of mergers are not likely to be seen for at least several years. Friendly mergers can happen but the ones that are most likely to succeed are those that combine airlines with little overlap – not just at hubs but throughout regions and in small and medium sized cities. The case for workable friendly mergers has to be built on increased operational efficiency and reasonable capacity reductions that will not substantially increase the combined carrier’s market presence. On this metric, the LFCs have a better chance of putting together a workable merger proposal than the network carriers but they happen to know how complicated and expensive mergers are and how unlikely they are of succeeding. Remember that every network carrier has a nationwide network. Only Northwest and Continental are significantly weak in one area of the country from an O&D perspective and also have no large operations in that region. Hostile mergers will rarely succeed in the airline or any service industry and there is no indication that is going to change.

So why do so many people in the industry continue to argue FOR consolidation? Look at the money. The only people that continue to push for consolidation are those that can make quick profits based on the deal rather than the long-term viability of the industry. No analyst that supports long-term investors has said the US-DL merger is good for the long-term viability of either company or the industry. And Doug Parker and Glen Tilton can hardly be said to be piloting airlines with strong long-term prospects; US continues to watch its market share and competitive position shrink while UA still has above average costs and debt – with no prospect of getting anything else out of the company in a downturn. The lowest costs alone won’t save an airline but when a carrier balances low costs and strong revenue production, they will succeed. And in the downturns when revenue falls off while costs rise as capacity is removed, being the lowest cost producer is far more valuable, esp. as low fare carriers expand into an airline’s key markets. UA and US are not positioned for long-term success in the industry which is why their owners want them to do a deal that keeps the money churning by reducing competition and putting off the day when those airlines have to admit their business strategies will fail.

So what kinds of airlines will succeed and become the acquirers when the time IS right for consolidation – and it will happen. One need only look at AA and CO as examples. AA has a war chest at its disposal – and despite its labor costs and relative lethargy regarding growth – still is a very viable long-term airline. CO in many ways is the poster child for how to successfully restructure an airline and DL mgmt – some of whom are former CO execs – are copying CO’s playbook as well as those of other bankruptcy success stories like Air Canada. Despite the current strategic challenges that CO faces now with nearly saturated hubs and a limited presence outside of its hubs, CO is still a very viable airline – and could survive for quite some time as a niche player. Is it any wonder that AA and CO and DL are the most vocal opponents of mergers and would only participate in consolidation if they were forced to, preferring instead to acquire assets? Only NW has said little on the topic of consolidation, perhaps because it is one of the few airlines where a friendly merger could happen with CO or DL if management can overcome the fleet and labor issues.

Consolidation will occur in the airline industry but it will be among carriers that can produce a merger proposal that is beneficial to all parties, including the public who still view airlines as a public asset. The airlines that will be the acquirers are the ones that manage their business year in and year out for long-term viability and success. And the time has to be right. Airlines most often consolidate during down times because it is a lot easier to convince regulators of the need when service is on the verge of being lost and because assets are a lot cheaper then. Merging in the downturns requires that one airline in the pair be managed for long-term profitability and success for stakeholders. Now that most of the industry is owned by creditors who are not interested in getting burned by short term strategies and second bankruptcies, the only deals that fly will be those that make solid financial sense and can be successfully and efficiently executed.

18 replies: All unread, jump to last
 
User currently offlineLAXdude1023 From India, joined Sep 2006, 7684 posts, RR: 25
Reply 1, posted (7 years 10 months 2 weeks 4 days 8 hours ago) and read 6908 times:

Wow!!! Very well thought out WorldTraveler.

I personally believe that mergers should only happen when the companies can be complementary to one another. I think that US/HP was a good merger because the airlines complenented each other well. US is a East coast airline, HP is a west coast airline, there is no/little route overlap. When their merger is complete, they will go well together. DL/US on the other hand is a really bad idea. There is much overlap and little compatability. Mergers are not a bad idea themselves, but the participants (ideally) should complement, not overlap each other.



Stewed...Lewd...Crude...Irreverent...Belligerent
User currently offlineWorldTraveler From , joined Dec 1969, posts, RR:
Reply 2, posted (7 years 10 months 2 weeks 4 days 3 hours ago) and read 6877 times:

thanks, LAX.

I do have to say I was surprised to see that NW could be an acquiree after posting that possibility just hours before.

Mergers can work but making reduced capacity as the basis for it will win no support other than on Wall Street.

And employees do have a real say in the success of any service business.


User currently offlineEWRCabincrew From United States of America, joined May 2006, 5527 posts, RR: 56
Reply 3, posted (7 years 10 months 2 weeks 4 days 3 hours ago) and read 6874 times:

Well said and well thought out, WorldTraveler. How long did that take?

Quoting WorldTraveler (Reply 2):
And employees do have a real say in the success of any service business.

In the success, they always have a real say. It is the employees, especially front line employees, that make a difference. It's what brings people back to them.



You can't cure stupid
User currently offlineBobnwa From United States of America, joined Dec 2000, 6490 posts, RR: 9
Reply 4, posted (7 years 10 months 2 weeks 3 days 13 hours ago) and read 6763 times:

Quoting WorldTraveler (Thread starter):
Third, there have been a few attempts at hostile takeovers. However, there isn’t one case in the US airline industry of a successful hostile takeover.

First off, an excellent article. You really have a good view of the industry. One exception I would like to make. The takeover of Northwest in a LBO by Cecchi and Wilson in early 90's was a hostile takeover. NWA had made a profit for over 28 years and had zero debt. The executives of NW and the employess (union and management) did not want to be taken over.

[Edited 2006-12-09 15:01:41]

User currently offlineWorldTraveler From , joined Dec 1969, posts, RR:
Reply 5, posted (7 years 10 months 2 weeks 2 days 23 hours ago) and read 6668 times:

thanks, Bob and EWR.

I agree with you that the LBO was unwanted but I see an LBO as different than a merger. An LBO doesn't involve all the operational issues that a merger involves. Nonetheless, the NW LBO was the beginning of NW's falling from being a quality carrier. I'm not sure where NW will end up but I do think they have the potential to be one of the few carriers that might successfully and willingly sell themselves as a whole rather than as part of an asset acquisition. While yesterday's news seems to say NW is still open to mergers (esp. given that the consultants get bonuses for consummating a merger), I'd be surprised if they succeed right now. Some of the same labor integration issues in the DL/US case (with HP/US labor) will be an issue w/ a NW attempt if it is attempted. DL and CO could be possbilities but they aren't going to pay for the complexity of a full-fledged merger and all the integration issues. AA would only buy the Pacific routes if anything and the Pacific routes won't be spun off alone anytime soon.

Like others in the industry, NW could merge w/ someone but the time is just not right. I think you'll see this business cycle end with the same 6network carriers as exist now.


User currently offlineANother From , joined Dec 1969, posts, RR:
Reply 6, posted (7 years 10 months 2 weeks 2 days 16 hours ago) and read 6625 times:

Excellent post. Interested in your views about cross border M&As (and the ownership and control rules)

User currently offlinePanamair From United States of America, joined Oct 2001, 4920 posts, RR: 25
Reply 7, posted (7 years 10 months 2 weeks 2 days 16 hours ago) and read 6622 times:
Support Airliners.net - become a First Class Member!

Quoting Bobnwa (Reply 4):
The takeover of Northwest in a LBO by Cecchi and Wilson

Speaking of that LBO, one of the other options on the table at that time was a merger offer from Pan Am's Tom Plaskett. Even though Pan Am was doing really badly, it managed to work with Bankers Trust to cough up enough to put up a credible offer; the combined route network (PA's Europe and Latin America, NW's domestic and Pacific) would have been a great combination and the combined carrier could have lived on years off of Pan Am's tax benefits (after years of huge losses)....Interesting to wonder what the industry would have been like had this global powerhouse been born.....


User currently offlineUSPIT10L From United States of America, joined Mar 2006, 3295 posts, RR: 7
Reply 8, posted (7 years 10 months 2 weeks 2 days 10 hours ago) and read 6594 times:

Quoting WorldTraveler (Thread starter):
It was then that the Government Accounting Office told the airline industry that bankruptcy should be the primary tool used by the struggling airline industry to turn itself around. Government subsidies would not be given out. It is against that backdrop that 4 out of the 6 network carriers that existed in 2003 have now been through bankruptcy. Something strange happened in bankruptcy during this business cycle. While bankruptcy historically has translated into a high mortality rate for airlines, United emerged successfully

UA went into bankruptcy, reorganized, played musical chairs with upper management, and emerged with the same people that put it into bankruptcy in the first place. UA is not a fit airline right, stock price notwithstanding.

Quoting WorldTraveler (Thread starter):
Some actually restructure their operations and networks and become viable – such as CO did during the 90s – and others just keep reducing capacity and slashing costs, a strategy that produces great short-term results but leaves the airlines that use that strategy highly vulnerable since capacity doesn’t leave the industry but is instead just transferred to other carriers.

I think US Airways is trying to be the new CO, a carrier that has had terrible, inefficient management and is trying to rehabilitate itself with good management and sound business practices.

Quoting WorldTraveler (Thread starter):
Is it any wonder that US Airways under Doug Parker has seen more new service and more new carriers added to US hubs by competitors than at any other airline since 2001?

The northeast has had more LCCs come in than anywhere else because US Airways had next to no direct competition on most of their key business routes. The upper midwest is now ripe for the picking, as NW has the same advantage.

Quoting WorldTraveler (Thread starter):
CO in many ways is the poster child for how to successfully restructure an airline and DL mgmt – some of whom are former CO execs – are copying CO’s playbook as well as those of other bankruptcy success stories like Air Canada. Despite the current strategic challenges that CO faces now with nearly saturated hubs and a limited presence outside of its hubs, CO is still a very viable airline – and could survive for quite some time as a niche player. Is it any wonder that AA and CO and DL are the most vocal opponents of mergers and would only participate in consolidation if they were forced to, preferring instead to acquire assets? Only NW has said little on the topic of consolidation, perhaps because it is one of the few airlines where a friendly merger could happen with CO or DL if management can overcome the fleet and labor issues.

I believe this is a primary reason for US Airways wanted to acquire Delta. CO is the primary east coast competitor for US Airways, both in size and hub locations. Delta is so much larger than US Airways that competing with them directly would cause more harm than good. Look at PIT, US Airways does not compete with Delta on any route. US Airways has said no to merging with NW because of the labor issues NW is having. Great post. Frankly I wish most of the DL employees would just stick to rebuilding their airline and let Jerry, the judge and the creditors work this proposal out. If it doesn't work for US, they still have $8 billion to play around with, possibly for another merger. Who knows?



It's a Great Day for Hockey!
User currently offlineOkie73 From United States of America, joined Mar 2006, 446 posts, RR: 0
Reply 9, posted (7 years 10 months 2 weeks 2 days 10 hours ago) and read 6593 times:

outstanding article WT.

User currently offlineWorldTraveler From , joined Dec 1969, posts, RR:
Reply 10, posted (7 years 10 months 2 weeks 2 days 2 hours ago) and read 6541 times:

Thanks, friends. I like to see these kinds of articles on a.net.

Quoting USPIT10L (Reply 8):


I think US Airways is trying to be the new CO, a carrier that has had terrible, inefficient management and is trying to rehabilitate itself with good management and sound business practices.

But then why does US continually rank at the bottom of the airline industry in terms of quality while CO is at the top?

And tell me, Pit, what does it feel like for your boss to tell you that your competitor's brand is considered much more valuable than yours?

Quoting USPIT10L (Reply 8):
The northeast has had more LCCs come in than anywhere else because US Airways had next to no direct competition on most of their key business routes. The upper midwest is now ripe for the picking, as NW has the same advantage.

CLT isn't in the midwest or NE. Everyone of US' hubs has been riddled by LFCs. No other network airline has seen as much other airline growth as US. Perhaps the theory that reducing capacity is good is not enough to keep market share from shrinking. And any business strategist will tell you that continually shrinking market share is a sentence to ultimate business failure - that's apparently why US wants to merge w/ DL because they can no longer hold onto their own markets.

Quoting USPIT10L (Reply 8):
CO is the primary east coast competitor for US Airways, both in size and hub locations.

Wrong. DL and US have the most overlap in terms of O&Ds. CO does not effectively compete in most of the O&Ds within the SE or from the mid-Atlantic and SE to Florida.


US is trying to buy DL for one reason only - to eliminate a competitor. And it is for that reason that the plan will fail. DL employee revolt is just icing on the cake.

Another,
I do think cross-border airline mergers can happen but they are a ways off. First, airlines have always been intensely guarded by every airline. The Dubai ports deal proved that Americans are not ready to sell off key assets (even though Dubai ports was already British controlled). The Bush Administration's withdrawal of foreign ownership changes in light of a Democratic Congress says there will be no change in US ownership rules for airlines anytime soon.

I think there is another reason, though. The US airlines were basically told they could and should use bankruptcy to reduce their costs and get competitive. History says some airlines will succeed and some will fail. I believe that there are network airlines that are telling the gov't that they want to have the chance to participate in consolidation w/ their network peers and believe they will be able to faciliate it at some point in the future. There are logical end-on-end mergers that can happen in the US industry (ie NW could fit w/ either DL or CO or US despite the fleet issues w/ the first 2) and perhaps US and AA, for instance. It is just too soon after (during) this phase of restrucutring to think that logical consoldiation can occur at this point. Some airlines will be able to merge but it won't happen yet.

I think the US gov't also feels a responsibility to protect the US industry from foreign takeover while the US industry is going through the restructuring that the gov't said it should undertake. I don't think anyone wants to wake up and find that any industry is largely controlled by foreign interests. It is worth waiting for the US airline industry to return to health before allowing better financing and sometimes protected foreign airlines from coming in and taking over the US industry while they are at their weakest point.

Once it becomes apparent that US airlines have done all they can to merge, then the gov't - and the American people - will be willing to allow foreign carriers to buy into the US industry. There are also no indications that any other airline in the world is or will be foreign controlled any time soon - other than EU airlines which might be owned by other EU (but not home country) interests.


User currently offlineUSPIT10L From United States of America, joined Mar 2006, 3295 posts, RR: 7
Reply 11, posted (7 years 10 months 2 weeks 1 day 23 hours ago) and read 6516 times:

Quoting WorldTraveler (Reply 10):
Quoting USPIT10L (Reply 8):


I think US Airways is trying to be the new CO, a carrier that has had terrible, inefficient management and is trying to rehabilitate itself with good management and sound business practices.

But then why does US continually rank at the bottom of the airline industry in terms of quality while CO is at the top?

And tell me, Pit, what does it feel like for your boss to tell you that your competitor's brand is considered much more valuable than yours?

Quoting USPIT10L (Reply 8):
The northeast has had more LCCs come in than anywhere else because US Airways had next to no direct competition on most of their key business routes. The upper midwest is now ripe for the picking, as NW has the same advantage.

CLT isn't in the midwest or NE. Everyone of US' hubs has been riddled by LFCs. No other network airline has seen as much other airline growth as US. Perhaps the theory that reducing capacity is good is not enough to keep market share from shrinking. And any business strategist will tell you that continually shrinking market share is a sentence to ultimate business failure - that's apparently why US wants to merge w/ DL because they can no longer hold onto their own markets.

Quoting USPIT10L (Reply 8):
CO is the primary east coast competitor for US Airways, both in size and hub locations.

Wrong. DL and US have the most overlap in terms of O&Ds. CO does not effectively compete in most of the O&Ds within the SE or from the mid-Atlantic and SE to Florida.


US is trying to buy DL for one reason only - to eliminate a competitor. And it is for that reason that the plan will fail. DL employee revolt is just icing on the cake.

Continental is a formidable airline with a great route network, terrific employees and excellent service. If Continental is not US Airways' biggest competitor, then why did US Airways hire away ExpressJet's head, David Siegel, in 2002, to begin to reshape the airline from a bloated, cost-heavy legacy, with little or no strategic direction, into a profitable, standalone, LCC, that is now fully capable of competing with any airline, anywhere? EWR is a full-fledged hub for Continental, whereas JFK is a large gateway for Delta. They don't even fly to Asia from it yet. The Northeast is and has always been US Airways' primary source of revenue and flights. Stop misdirecting my quotes and answer my questions. Point blank--US Airways is making money right now, Delta is not. Delta is in bankruptcy, US Airways is not. Therefore, the advantage is not in Delta's favor. It is in US Airways. Let the creditors and judge decide Delta's fate, not you and your US Airways-bashing friends.



It's a Great Day for Hockey!
User currently offlineSteeler83 From United States of America, joined Feb 2006, 9235 posts, RR: 21
Reply 12, posted (7 years 10 months 2 weeks 1 day 22 hours ago) and read 6492 times:

So US wants DL so that it can hold onto its NE presence then, as thanks to LCCs, especially WN when they entered PHL and PIT in 2004 and 2005 respectively. PHL is a fortress hub for US, and from what it looks like, US seems to be losing the battle to WN on given domestic routes, especially like PHL-PVD/ALB/et all NE? At least WN can't come close on over-the-pond expansion that US is doing with PHL.

I also noticed that most of the flights between PHL and PIT anymore are becomming RJs. There are only a handful of N/S mainline flights. One A321, A319, and 733 are the only mainline aircraft pretty much going back and forth now. The rest are RP (like I am complaining about that) Chataqua, Piedmont, etc...

Quoting WorldTraveler (Reply 10):
Everyone of US' hubs has been riddled by LFCs. No other network airline has seen as much other airline growth as US. Perhaps the theory that reducing capacity is good is not enough to keep market share from shrinking. And any business strategist will tell you that continually shrinking market share is a sentence to ultimate business failure - that's apparently why US wants to merge w/ DL because they can no longer hold onto their own markets.

And coming back to PIT again, I guess we would see an over-all gain at PIT... US would get ATL and CVG back, and add JFK and SLC service... 15+ daily flights added to the PIT network, again, providing that Parker remains true to his word that PIT would remain a key focus city...

It is still hard to tell what will happen to JFK and PHL... Both have huge O&D, and are very strong European gateways for their respective airlines. I know too little in this regard to post anything...



Do not bring stranger girt into your room. The stranger girt is dangerous, it will hurt your life.
User currently offlineWorldTraveler From , joined Dec 1969, posts, RR:
Reply 13, posted (7 years 10 months 1 week 5 days 5 hours ago) and read 6397 times:

Quoting USPIT10L (Reply 11):
Point blank--US Airways is making money right now, Delta is not.

US does not exactly have a long track record of profitability. Let's not get carried away. US was itself in bankruptcy barely over a year ago.

And DL has indeed made money since filing for bankruptcy. I don't recall US accomplishing that feat.

Quoting USPIT10L (Reply 11):
Let the creditors and judge decide Delta's fate, not you and your US Airways-bashing friends.

They will. It just happens that DL happens to have a lot of friends in high places (like Washington - that town that used to house US' HDQ) that are dead set that this merger won't happen. Two US Senators have already gone on public record as being against it and the incoming House transportation committee chair has expressed serious concerns. Regardless of what money interests want, they cannot buy their way past regulatory hurdles that will sink US' attempts.

I hope you don't get too wrapped up in this US prospect - or any merger for that matter - because chances are real good that NONE of them will happen. A little birdy has told me that CO and UA aren't even seriously talking now because they can't agree which name and HDQ gets eliminated. Is anyone surprised?

Network airlines just might have to earn their existence instead of trying to facilitate mergers that cover how badly they are positioning themselves for long-term success.


User currently offlineUSPIT10L From United States of America, joined Mar 2006, 3295 posts, RR: 7
Reply 14, posted (7 years 10 months 1 week 5 days 4 hours ago) and read 6366 times:

Quoting WorldTraveler (Reply 13):
I hope you don't get too wrapped up in this US prospect - or any merger for that matter - because chances are real good that NONE of them will happen. A little birdy has told me that CO and UA aren't even seriously talking now because they can't agree which name and HDQ gets eliminated. Is anyone surprised?

I'm not getting too wrapped up in it. My view on airlines mergers is to accept that it will happen, then weigh in the facts and possibilities on what the acquirer will do to the other airline. I state my views and let the merger take its course. I have never seen such arrogance out of DL's people and supporters. You guys acted like you were too good for US to acquire or associate with. Get over it. It's a business. I respect your right to an opinion but don't go overboard. I love the direction the new DL is headed in. US Airways deserves to thrive and survive just like Delta does. Why not let them do it together?



It's a Great Day for Hockey!
User currently offlinePanamair From United States of America, joined Oct 2001, 4920 posts, RR: 25
Reply 15, posted (7 years 10 months 1 week 5 days 1 hour ago) and read 6315 times:
Support Airliners.net - become a First Class Member!

Quoting USPIT10L (Reply 14):
US Airways deserves to thrive and survive just like Delta does. Why not let them do it together?

Why not let them do it separately? Frankly, DL is not good for US and neither is US for DL. Both have structural holes which cannot be filled by the other - it's not a complementary situation. If Parker is really deadset on creating value through a merger, US is much better served going with another carrier that can complement it much better than DL can...oh, say, UA - the only other carrier that is hellbent on industry consolidation. A UA-US match up is more complementary than a DL-US combination could ever be (at this point):

UA offers US amongst other things:
- Asia/Pacific
- Strong Mid-west hub
- Access to South America

US offers UA amongst other things:
- Southern presence (CLT)
- More direct access to secondary European cities
- More access to the Carribbean


User currently offlineWorldTraveler From , joined Dec 1969, posts, RR:
Reply 16, posted (7 years 10 months 1 week 5 days 1 hour ago) and read 6290 times:

Quoting USPIT10L (Reply 14):
Why not let them do it together?

For one simple reason. US is not pursuing DL for any reason except to eliminate competition and put US in a position to be the dominant airline on the east coast (regardless of whether you call it Delta or not).

If US was serious about expanding its franchise, it would have pursued NW - who obviously is open to the idea of mergers and fits much better than DL in terms of its network, fleet, and culture.

US has no interest in NW because what it really wants is to save itself from being reduced to insignificance - a process that Doug Parker started by reducing capacity across US' network, only to result in the greatest loss of market share by a single carrier in one year. US has been managed for short term results only and the long-term consequences of Parker's decisions are horrific for US mgmt to imagine.

And whether you want to believe it or not, US and DL overlap on more O&Ds throughout their network than do any two airlines except for UA and AA. Nearly 60% of DL and US' domestic O&Ds are directly competitive with each other. And unlike AA and UA, DL and US have a higher percentage of combined market share in the overlap markets than does AA and UA.

It is because of the flawed nature of the US proposal that it will fail - and because it was supposed to be the linchpin for consolidation throughout the network industry - network consolidation will not happen.


User currently offlineLTBEWR From United States of America, joined Jan 2004, 13138 posts, RR: 15
Reply 17, posted (7 years 10 months 1 week 4 days 23 hours ago) and read 6251 times:

There was an article in the Business pages of the Dec. 14th edition of the New York Times discussing the problems of recent and proposed airline mergers and the negative affects upon consumers. I didn't provide a link as it probably requires being a subscriber to the newspaper.
There are some other factors about mergers that has to be dealt with.
Payroll and retirement costs are one place that many in mergers hope to reduce in mergers, eliminating many overlapping position. There is a limit as to how may companies can dump their retierment/pension costs to the Government bail-out agency. When that is done, it creates more anger in the workers, especially those close to retirement or enough years with an airline that they cannot leave or lose.
Employee intergration and staff reduction issues sometimes are a horror that often ends up making a number of mergers failures and lead to collaspe of some of them.
Fleet intergration can and often be a make or break issue in airline mergers. Far too often in the past, mergers meant the new entity ending up with bad mixes of too many airline brands, models, sub-models, seating and interior designs. One benefit (so to speak) of some past USA based airline mergers has been the dumping of pax large widebody aircraft including 747's, DC-10's and L-1011, dumping older narrowbodies like 727's, DC-9's (except for NW), as well as older 737's. They have kept or switched to newer 2 engine and smaller aircraft including the 767, 757, A-320 series and larger pax capacity 737's.
As to allowing greater percentage of foreign ownership of American based airlines, I doubt that will happen. Don't forget that the US Military can require airlines to make their equipment and staff available as needed to provide transport for troops in wars, occupations, and national emergencies or humanitarian needs. I don't think any military leader or politican wants to be in a conflicts with the owners as to access to aircraft. If foreign ownership was higher today in USA based airlines, that could be used against them over the current USA policies in Iraq and so on.
One of the greatest problems with mergers, especially with the big ones recently and proposed, is the the affects on the passenger customers mainly as to fare pricing. Business customers are especially concerned with this. They despise that they have to pay disproportinat fares while some family going on vacation pays a fraction their people have to pay. What there needs to be is a balance. A number of years ago, the then head of AA proposed and put into use a simple 4 tier fare system. It meant biz pax didn't pay too much, and leisure pax didn't pay too little. It didn't last as it made it too easy for competitiors to cut fares to below them. To me there may have to be some easing of Antitrust laws as to airfares to make sure that the legacies can fairly competate and still exist. They can let Southwest, AirTran and the other LLC's take the cheap pax.


User currently offlineWorldTraveler From , joined Dec 1969, posts, RR:
Reply 18, posted (7 years 10 months 1 week 4 days 8 hours ago) and read 6197 times:

Now that there are some cracks beginning to develop in all of these proposed mergers, people are beginning to remember that airline consolidation is always difficult. There are very few successful voluntary non-crisis mergers because of the reasons you cite, LTB.

I still believe this business cycle will end with the same six network airlines as we had on 9/11. Consolidation may occur but it will be during a financial crisis which means one airline in a pair has to be healthy. We'll see who it is.


Top Of Page
Forum Index

This topic is archived and can not be replied to any more.

Printer friendly format

Similar topics:More similar topics...
The Future Of The US Airline Industry posted Sun Aug 14 2005 05:36:31 by DeltaGuy767
Video About The US Airline Industry posted Fri Sep 15 2006 20:00:49 by Flyf15
Why Is The US Airline Industry In Such Big Trouble posted Thu Jan 6 2005 21:09:18 by Cedarjet
Gays And The US Airline Industry posted Sun Feb 23 2003 15:08:15 by ContinentalEWR
The United States Airline Industry posted Tue Nov 16 2004 22:24:14 by Planespotting
State Of US Airline Industry posted Fri Sep 10 2004 11:12:30 by UAXDXer
Who Will Be The 1st US Airline To Order The 7e7 posted Mon Jul 12 2004 20:31:31 by Njdevilsin03
What's The Greatest US Airline Success Story? posted Thu Feb 19 2004 19:10:19 by Zrs70
The Best US Airline? posted Sat Jan 12 2002 17:07:47 by Arsenal@LHR
Which Is The Best US Airline? posted Sun Jul 2 2000 19:47:05 by Speedbird777