With credit to Mike Boyd of http://www.aviationplanning.com
(edited for length)
The US Airways Offer For Delta
The Variety Show Is About To Begin
Small Communities: Get Ready For Less Air Service
We'll probably have to wait for the debut of the circus that is sure to develop from the US Airways hostile offer for Delta.
There'll be dancing bears in the form of Wall Street analysts, jumping through hoops in perfect obedience to their handlers. Magicians making data disappear and re-appear in reality-defying forms. Puppet acts, too, with politicians doing routines dictated by whichever way the dollars may go
Yup, Ed Sullivan would be proud. So, unfortunately, would P.T. Barnum. That's because no how much glitz, glitter, promises and paid PowerPoint presentations will be spit out to hype this deal, it's still a bad one for the consumer.[/b
This Deal Is Not Comparable To the US/HP Combination
Much will be made about how the America West acquisition of US Airways is the poster-child for this Delta deal. Nothing could be farther from reality. [b]The hostile takeover offer from US Airways is a full-blown, bona fide, overlay merger - one that, as admitted by US Airways, will result in less, not more.
On the other hand, the acquisition of the original US Airways by America West Holdings was essentially an asset-purchase, and one that represented very little overlap.
First, in 2005, America West Holdings bought a dying carrier that represented very little route or competitive overlap. That's 100% different from this current deal, where there is competitive overlap up the whazoo, particularly in smaller communities that have near zip chances of getting new competition should this merger go through.
Second, in the first US Airways deal, HP
acquired a carrier that for all indications was heading smooth out of business… That, too is 100% the opposite of what this hostile take-over of Delta represents.
Finally, it needs to be kept in mind that despite admirable progress, the integration of HP and US is not yet complete.
Adding Delta into the mix - well, draw your own conclusions regarding the immediate operational "efficiencies" this might bring.
Myth One: We Need Consolidation.
Six months ago these folks were still claiming that the industry had "over-capacity." That being proven nonsense by high demand and 80% load factors, the tune has changed.
Supposedly, these folks now claim, there are too many seats out there to support a "healthy" airline industry, even if, at 80%+ load factors, everything is essentially full, and airlines are now pushing into the black.
More hypothetical nonsense. Not only is the system full, but for the first time in memory, comprehensive network airlines are well positioned for an economic downturn.
but Congress and the DOJ will need huge on-going doses of this mind-numbing nonsense if they are going to eventually believe it.
Myth Two: Mergers Will Make Airlines Stronger, Causing More Mergers. Don't buy into the hype that there are huge immediate operational synergies in this deal that will render the New Delta a competitive wonder.
The fleets are the economic equivalent of the Hatfields & McCoys. 777s and A-330s. 737s and A-320s.
. To the creatures that inhabit some parts of the financial world, this means nothing. But when real-world realities of maintenance programs, training curriculums, parts inventories, not to mention union bid-and-bump issues, are considered, what this entity will represent on the day the merger is consummated will be one big wallowing marketing target for its competitors.
Myth Three: This Merger Won't Reduce Competition. this merger will decimate it.
Communities, politicians, and state AGs should be prepared this coming week for a Minnesota-denuding blizzard of paper "studies" and analyses, all purporting to represent that combining Delta and US Airways won't result in higher concentrations or in less competition.
Ray Charles could see through this one.
We'll start with this: when you remove one consumer option, competition is reduced
Enter The Clowns. Remember, there are tens of millions to be made on this deal, so it won't go away, and there will be lots more entertainers brought in...
Politicians. The full-court press will be made on Congress. The promises will be flowing like muscatel at a wino convention to "maintain service, increase service, upgrade service," whatever it takes. Rep. James Oberstar, D-MN is slated to be the congressional honcho overseeing airlines. He's so far made less than favorable comments about this deal,
Academics & "Coalitions" - Follow the money. In some cases we found that it was one of the merger partners that quietly paid for a supposed "independent institution" to do its "independent study.
Yeahbutt, These Guys Are Smart. The argument will be made that the management team at US Airways is at the top of the airline game, are proven visionaries, and are incredibly good at what they do.
All of it, based on historical, provable and factual results, is entirely accurate. Maybe even an understatement, particularly when one considers the state of America West when Mr. Parker assumed CEO and where it is today in its present form.
But that doesn't mean that visionaries can't make mistakes, nor that visionaries can't find themselves needing or wanting to do deals they might not otherwise do, simply due emergence of perceived or real market "opportunities." The open question is whether a hostile takeover of Delta is an "opportunity" that fits the current US Airways.
Windows of Opportunity? Not If They're 40 Floors Up. Even the best management has been vulnerable to mistakes. Remember Bob Crandall's "Value Pricing?" When that fiasco finally played out, American was out somewhere north of $300 million in lost revenue.
Back in ancient airline history, in 1978, the whiz-kid in the business was Harding Lawrence of Braniff. He had taken what was essentially a small relatively unfocused carrier, and transformed it into a high-profile potential international juggernaut. Banks were throwing money at Braniff, based on the track record of Mr. Lawrence. In the late 70s, Braniff was minting money, with break-even load factors well under 50%.
Then came some huge mis-steps subsequent to deregulation - caused by this visionary concluding that Braniff just had to jump through a window of opportunity. Three years later, Harding was history, and a year after that, after a dalliance with a "messiah" CEO who completed flying the airline smooth into the ground, Braniff International was gone.
More recently was Independence Air. The management team there was one of the most respected in the industry, again, with a brilliant track record. It is hard to believe that, once this team found the I-Air plan didn't work, they would stick to it until the airline had blown through $300 million or more and ran out of money. But they also saw a window of opportunity that they just had to take advantage of.
This, unfortunately, could be the situation at US Airways - they feel this is an opportunity they can't pass up. It could be a dangerous one.
But after next Monday, the show will begin. Just remember, it's entertainment, and not necessarily a reality show.