Max Q
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'Inevitable Mergers'

Mon Oct 03, 2005 3:42 am

With many taking the position that Airline consolidation is inevitable, in light of the rumored Delta/Northwest merger, I wonder why Alaska and to a lesser extent Hawaiian airlines have not been put into play.

Alaska has had it's problems, but has a strong franchise and Hawaiian seems to be doing quite well considering, they also both have young and soon to be younger fleets.

Bearing in mind that both of these are 'full service arlines' with predominantly Boeing products, I would have thought they would be ideal merger partners in a three way Continental / Alaska / Hawaiian deal with Continental as the surviving carrier.

Fleet commonality would be good with all of th NG'S destined for Alaska and the 763's with Ha would be mostly common with Cals (even a similar 777 style interior)

The only oddball being the 717 which in which market it is uniquely suited anyway.

Alaska would bring strength, full service and feed on the west coast which is not Cal's greatest strength and a common fleet.

Hawaiian would serve to beef up Cal's Island service and expand to further Pacific destinations, once again, with full service and a modern, common fleet.

If consolidation is inevitable and Cal needs more 'critical mass' I think this coud work very well.

Thought's opinions?
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N908AW
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 6:20 am

I have an idea. Let's combine AS/HA/CO/DL/FL/YX/G4/SY/Pace/WN and form one All-Boeing airline. Then, let's combine NW/UA/US/B6/F9/DH/Spirit/USA3000, forming one All-Airbus airline. If that doesn't work, let's go even further and combine those two!  sarcastic 

Remember, the problem is temporarily high fuel prices and ornery unions, along with arrogant management. The brunt of these problems do not disappear after merging. When a capitalist system works properly, the consumer is the winner. Note that the airlines who are honoring that idea are the ones actually making money.
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MarshalN
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 6:23 am

Quoting N908AW (Reply 1):
Remember, the problem is temporarily high fuel prices and ornery unions, along with arrogant management. The brunt of these problems do not disappear after merging. When a capitalist system works properly, the consumer is the winner. Note that the airlines who are honoring that idea are the ones actually making money.

N098AW, I am afraid the high fuel prices are here to stay. This is not the same type of price shock that we suffered in the 70s, when it was mostly a supply shock. A lot of the prices these days are driven by increased demand. Sure, there is the higher prices shock from things like Katrina, but those are generally short term shocks that will adjust quickly. $60 barrels though is probably here to stay for the forseeable future. Given that, I think there needs to be structural adjustments in the airline industry to fix the problem.
 
PhilSquares
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 6:36 am

Quoting N908AW (Reply 1):
Remember, the problem is temporarily high fuel prices and ornery unions, along with arrogant management

Not quite true. One of the biggest problems in the US airline industry is overcapacity. This is exacerbated by the fact that leasing companies have gone to great length to keep carriers operating when perhaps the carriers should have been allowed to fail.

The leasing companies can't run the risk of having a flood of aircraft onto the leasing market. They'd rather have a lower return instead of having the aircraft parked.

One of the legacy carriers could indeed disappear and the US airline industry would keep on going without missing a beat. But, then the leasing companies are on the hook.

Airline management hasn't helped. The simple fact is if you look at the legacy carriers, you will find a business model that is simply out of touch with reality. The overhead at the legacy carriers is simply killing them. If you compare SWA with the legacy carriers, you'll find that revenue/employee is almost 4 times what the legacy carriers are generating.

Unions, they haven't helped the situation, but labor costs aren't the major issue. Look at the SWA pilot's pay, it's the highest among the US passenger airlines. The real issue is productivity. That's the issue the unions need to address.
Fly fast, live slow
 
DLKAPA
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 7:13 am

Quoting PhilSquares (Reply 3):

Not quite true. One of the biggest problems in the US airline industry is overcapacity.

I disagree. Some markets maybe, but overall the capacity issue really isn't a big one. UA, DL, NW, AA, and CO have all managed operational profits in the last 2 quarters, AA and CO even making net profits. If the problem is in overcapacity, common sense would dictate that less than half the seats flying are filled, and in order for airlines to be making even an operating profit, fares would be in the 1 grand range for even the domestic hops. That's just not the case. The problem isn't even high fuel costs, but rather UNSTABLE fuel costs. Once the price of fuel stabilizes, airlines can manage their business plan around the cost of fuel and even with high fuel cost they can reorganize themselves into money making units. Right now with fuel very unpredictable, it's anybody's ballgame. Oh and I don't expect WN to be in the black for very long, they've hedged their fuel at $40 a barrel prices and structured their business plan around that. When the hedge runs out and they're paying $80 a barrel on a business plan that only works at $40, they're gonna hurt.
And all at once the crowd begins to sing: Sometimes the hardest thing and the right thing are the same
 
jetdeltamsy
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 7:23 am

Quoting Max Q (Thread starter):
I wonder why Alaska and to a lesser extent Hawaiian airlines have not been put into play.

Alaska still has a significant market cap of about $800 million, making it a very expensive airline to acquire at this time. United, USAir or Delta could probably be acquired for the same or even less money.

Quoting Max Q (Thread starter):
Bearing in mind that both of these are 'full service airlines'

Alaska is as much a vendor airline (flying codeshare for nearly everybody, like Comair, ASA, Mesaba, Pinnacle, AirWis, etc...) as it is a stand-alone full-service airline. Much of their traffic comes through these code-shares.
Tired of airline bankruptcies....EA/PA/TW and finally DL.
 
PhilSquares
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 8:33 am

Quoting DLKAPA (Reply 4):
If the problem is in overcapacity, common sense would dictate that less than half the seats flying are filled, and in order for airlines to be making even an operating profit, fares would be in the 1 grand range for even the domestic hops.

Again, load factors are not an indication of profitability. What is happening now is you have airlines selling their product below cost to maintain or gain market share. That can't continue.

Remember the demand curve for air travel, especially in the US is very elastic. A small change in price has a large impact on demand.

Quoting DLKAPA (Reply 4):
UA, DL, NW, AA, and CO have all managed operational profits in the last 2 quarters,

I do know AA and CO had some operational profits, but none of the others have. CO has warned about substantially larger losses than anticipated and AA is coming back to all the employees for more cuts.

The basic issue is the carriers want to maintain market share and are willing to sell their product below cost. If there was a reduction in capacity and the seats were off the market on a permanent basis, you would see a rise in RASM and a decrease in passenger travel. There has to be, as some point, a rationalization of the US domestic market.
Fly fast, live slow
 
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 8:56 am

Quoting Max Q (Thread starter):
in light of the rumored Delta/Northwest merger

That's not happening, end of story, stop talking about it.

B
 
Max Q
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 9:30 am

I would never say never to anything in this business, anything is possible and has proven so in the past.
The best contribution to safety is a competent Pilot.
 
flydl2atl
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 9:37 am

I don't think overcapacity is the issue per se. If there is 1 issue that is causing the carriers to lose money, it's not fuel...not overhead but rather the inability to raise fares. UPS and FED-EX aren't losing money...they have been able to pass on fuel costs to the consumer. Airlines have not been able to do that. The LCC's are using their competitive structures to keep prices artifically low. Their business plan is to charge low fares until some of the legacies go out of business (which is funny because that's never going to happen). Not only that, but they are adding planes to their fleets which will further keep prices down. Despite the fuel costs, AirTran, JetBlue, and SouthWest have opted to NOT raise fares (well ok SW by $2). This would be ok if they were making tons of money, but their current business models are barely viable (as evidenced by their poor credit ratings...with somewhat of an exception for SW). In a nutshell, the current state of the airline industry is a direct result of the presence of LCC's.
 
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 9:38 am

Quoting Max Q (Reply 8):
I would never say never to anything in this business, anything is possible and has proven so in the past.

Ok, rumor has it Jetblue will be getting DC10's. Will they use them for their rumored BOI-PEK service?  Wink

B
 
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mariner
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 9:39 am

Quoting N908AW (Reply 1):
the problem is temporarily high fuel prices and ornery unions

Which "ornery unions" did you have in mind?

To date, with one exception, the unions have taken it all up the butt - loss of pensions, cuts in pay, loss of jobs - without any lube. They may have yelled and screamed, but in the end, they did nothing.

The one exception was AMFA at Northwest, the only one with the balls to go on strike.

So how are all these "ornery unions" a problem?

mriner
aeternum nauta
 
aa777223er
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 9:56 am

Quoting PhilSquares (Reply 6):
AA is coming back to all the employees for more cuts.

What is your source for this statement? I work at AA, and as of today, no one has asked me for another pay cut.

Regards,

AA777223ER
time flies, seize the day
 
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N328KF
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 10:34 am

F9 and B6...that one is inevitable.
When they call the roll in the Senate, the Senators do not know whether to answer 'Present' or 'Not guilty.' -Theodore Roosevelt
 
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 10:38 am

Quoting N328KF (Reply 13):
F9 and B6...that one is inevitable.

Oh of course! They both have direct TV!  Wink

B
 
FCYTravis
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 11:25 am

But what about the much-ballyhooed "Mad Dog Merger" of AA, DL, NW and Spirit?

For fleet commonality and simplification reasons, the merged airline planes to get rid of all aircraft except the DC-9 series, DC-9-10 through DC-9-83.

For international flights, they will retrofit some of AA's Super 80s with wing drop tanks and a cargo-belly tank. Carry-on luggage only to LHRBig grin
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db373
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 11:32 am

Quoting PhilSquares (Reply 3):
Airline management hasn't helped. The simple fact is if you look at the legacy carriers, you will find a business model that is simply out of touch with reality. The overhead at the legacy carriers is simply killing them. If you compare SWA with the legacy carriers, you'll find that revenue/employee is almost 4 times what the legacy carriers are generating.

So then why are the legacy carriers catching hell when they have to cut pay and employee benefits to meet the standard that LCC have created?
Keep Delta My Delta
 
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ODwyerPW
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 11:39 am

JetBlue and Frontier would be complimentary wouldn't it?

However, both are stong airlines and don't need to merge to compete in a game of last man standing.
learning never stops.
 
N908AW
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 11:41 am

Quoting Mariner (Reply 11):

Which "ornery unions" did you have in mind?

To date, with one exception, the unions have taken it all up the butt - loss of pensions, cuts in pay, loss of jobs - without any lube. They may have yelled and screamed, but in the end, they did nothing.

The one exception was AMFA at Northwest, the only one with the balls to go on strike.

So how are all these "ornery unions" a problem?

I understand the 'taking the butt' idea, but unfortunately there is not many other options for cutting costs to offset fuel right now.
Cutting cities=systemwide load factor decreases usually, thereby keeping costs relative
Cutting planes=less flights to be done, generally lower yields, less cities (see above)
Cutting jobs for good=less personnel availabe, have to cut planes (see above)
Cutting fuel=it's too late for that.
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stirling
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 11:48 am

Quoting N908AW (Reply 1):
I have an idea. Let's combine AS/HA/CO/DL/FL/YX/G4/SY/Pace/WN and form one All-Boeing airline. Then, let's combine NW/UA/US/B6/F9/DH/Spirit/USA3000, forming one All-Airbus airline. If that doesn't work, let's go even further and combine those two!

I have nothing of substance to add, except; THAT IS HELLA FUNNY!

As you were....
Delete this User
 
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mariner
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 11:48 am

Quoting N908AW (Reply 18):
I understand the 'taking the butt' idea

That's not quite it. You said that "ornery unions" wree a major probloem (together with fuel).

The unions have protested, but they have accepted. So - how are they a problem?

cheers

mariner
aeternum nauta
 
DLKAPA
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 11:56 am

Quoting N908AW (Reply 18):
Cutting planes=less flights to be done, generally lower yields, less cities (see above)

Or, if they were smart, cutting planes and keeping cities would bring a/c utilization up.
And all at once the crowd begins to sing: Sometimes the hardest thing and the right thing are the same
 
yanksn4
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 11:58 am

Quoting Max Q (Thread starter):
Fleet commonality would be good with all of th NG'S destined for Alaska and the 763's with Ha would be mostly common with Cals (even a similar 777 style interior)

I think what Max Q has suggested is not a bad plan at all. Continental and Alaskan make tons of sense from the outside and could maybe work. I don't see the need for Hawiian to get in on it. I believe they could just wait for Hawiian to die out to get those 767's. Anyway, just my thought.

signed,
Matthew
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wdleiser
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 1:18 pm

We need to build more refineries but we can thank tree huggeres for that part. I am sorry but it is true.
 
alphascan
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 1:25 pm

Quoting N328KF (Reply 13):
F9 and B6...that one is inevitable.

Except for the fact that both carriers' CEOs have publicly sworn off growth by merger - for the exact same reasons by the way- and both CEOs seem to have the full confidence of their respective Board of Directors.

Don't hold your breath for either of them to merge with anyone.
"To he who only has a hammer in his toolbelt, every problem looks like a nail."
 
FCYTravis
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 1:35 pm

More refineries won't change the fact that our supply of crude oil is limited by natural factors - not the least of which is that a bunch of our oil and gas wells in the Gulf of Mexico are still out of service.

BTW, it's not just your scapegoat "tree-huggers," it's also the fact that prime locations for new refineries are pretty much all blanketed by development now. The land will be awesomely expensive *and* I don't know of a single person who will be happy to have an oil refinery move in next door.
USAir A321 service now departing for SFO with fuel stops in CAK, COS and RNO. Enjoy your flight.
 
DLKAPA
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 3:38 pm

Quoting Wdleiser (Reply 23):
We need to build more refineries but we can thank tree huggeres for that part. I am sorry but it is true.

Will you get off it? Back in the wayback oil capacity was fine, so more refineries weren't needed. Ok now they are, build the things if it'll make you happy.
And all at once the crowd begins to sing: Sometimes the hardest thing and the right thing are the same
 
PhilSquares
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 3:48 pm

Quoting Db373 (Reply 16):
So then why are the legacy carriers catching hell when they have to cut pay and employee benefits to meet the standard that LCC have created?

It's all about productivity. Do you consider SWA a LCC? If so, take a look at their pilot and mechanic pay. It's not low cost. However, their key is productivity. The legacy carriers are taking the path of least resistance. The top executives need to re-invent the carriers. That's the key to their success.
Fly fast, live slow
 
boeing767mech
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 8:54 pm

Quoting AA777223ER (Reply 12):
Quoting PhilSquares (Reply 6):
AA is coming back to all the employees for more cuts.

What is your source for this statement? I work at AA, and as of today, no one has asked me for another pay cut.

Regards,

AA777223ER

I also work for American and I have heard rumours that the VP of Maint. is having a meeting with the union in ORD and on of the things on the table is most give backs.

David
BOS
Never under-estimate the predictably of stupidty
 
AwysBSB
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 9:44 pm

Quoting Max Q (Reply 8):
Quoting Max Q (Thread starter):
in light of the rumored Delta/Northwest merger

That's not happening, end of story, stop talking about it.

B

It is completely fool the idea of DL/NW merger.
If each one is incapable to overcome its situation alone, there are better merger options like Delta/DHL, Northwest/FedEx or something similar.

[Edited 2005-10-03 14:51:35]
 
Baexecutive
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RE: 'Inevitable Mergers'

Mon Oct 03, 2005 9:56 pm

In light of recent consolidation throughout the continent I would say a BA tie up is inevitable. Possible candidates; Iberia, SN, Olympic???
 
USADreamliner
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RE: 'Inevitable Mergers'

Tue Oct 04, 2005 12:03 am

Combine DL-AS-CO and name it Pan American Airways checkmark 

Combine AA-UA-NW and name it Eastern Airlines checkmark 

And the cycle of life begings again...

USADreamliner.  wave 
 
ouboy79
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RE: 'Inevitable Mergers'

Tue Oct 04, 2005 12:45 am

Quoting FCYTravis (Reply 25):
More refineries won't change the fact that our supply of crude oil is limited by natural factors - not the least of which is that a bunch of our oil and gas wells in the Gulf of Mexico are still out of service.

Actually one of the news magazines did a story on this. Something where our oil demand right now is like 71 billion barrells, but our refining capacity (when everything is working) is only around 60 billion barrells now. We can pump all the oil our hearts desire (yes it'll run out one day, but that is a different discussion)...but if refining capacity doesn't increase, it won't mean a thing. It has been roughly 30 years since a new refinery has been built due to strict EPA standards, but its also the fact oil companies lost their ass on refining operations - until now.

Quoting PhilSquares (Reply 27):
It's all about productivity. Do you consider SWA a LCC? If so, take a look at their pilot and mechanic pay. It's not low cost. However, their key is productivity. The legacy carriers are taking the path of least resistance. The top executives need to re-invent the carriers. That's the key to their success.

You hit it on the head. Southwest has some of the highest paid employees now, but their productivity helps. Of course they are only making money now thanks to their hedges. Back on your capacity comments. Like others have stated, which airlines flying aorund 80% full...its not so much a capacity problem, but a fare problem. You have airlines like Northwest that price below cost for market share...causing everyone else to follow suit. You have the LCCs that are going for death blows pricing just above their costs. Not to mention we can throw in the billions of security and usage taxes on air travel, and the whole thing is a mess.

How to fix it? Sit back and let the market play out. Of course that means we need to find a way to keep airlines from abusing the courts for over 3 years. I have no problem with airlines needing to reorganize their house under court protection, but don't allow them to drag their feet. Get, get a plan, raise your money, and get out and see if it works.
 
rampart
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RE: 'Inevitable Mergers'

Tue Oct 04, 2005 12:55 am

Quoting Wdleiser (Reply 23):
We need to build more refineries but we can thank tree huggeres for that part. I am sorry but it is true.

You can thank several presidents, notably Richard Nixon, who supported laws to save your health and protect the environment. Yes, we need more refineries, but following wise regulations, and placing them carefully to minimize impact on the environment or populations. Distributing the industry across the country might help minimize impacts from natural disasters. Expect to pay more for the refined fuel at any rate, regardless of where it comes from.

Rampart
 
fewsolarge
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RE: 'Inevitable Mergers'

Tue Oct 04, 2005 6:36 am

Quoting Wdleiser (Reply 23):
we can thank tree huggeres

Would you really like to live in a world where the interests of the few and powerful run unchecked? Vive la balance!

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