“Premier Global Airline”: liveblogging the Delta-NWA press conference

The press conference is streaming live at www.newglobalairline.com. It got started about 10 minutes late.

Richard Anderson (Delta CEO): this is a financially powerful merger. Also: it’s especially necessary due to record-high fuel prices. He claims Delta-NWA will be “better able to handle the volatility of fuel” than as standalone carriers. Transaction creates over “6,000 new city pairs.” HQ in Atlanta but will retain strong operational and executive presence in Twin Cities.

Doug Steenland (NWA CEO): “combination is focused on sustainable growth and expansion.” Delta-NWA will fly to every major business center in the world. “No hub closures. We remain committed to the communities we serve.” “As a result of our complementary, overlapping route network, competition in the airline industry will remain.”

Q&A:

• Can NWA pilots scuttle the deal? Will Air France-KLM invest in the new Delta-NWA? Anderson: Air France is excited about seeing their European merger hook up with a comparable U.S. merged airline within the Skyteam alliance. Mentions antitrust immunity recently granted for Delta-NWA-Air France-KLM in transatlantic scheduling and fares. Mike Cooper of Delta: “we tried to bring pilot groups together at the beginning.” We have eight to nine months of regulatory processes to bring NWA pilots around. “Game changer” if they can do it, Cooper says.
• Can Delta-NWA achieve profitability regularly? How can the combo offset rising fuel prices? Airline profitable in first year of operations. Expecting fuel prices to rise, so we’re planning for it.
• How and when did the decision to merge first come up? Steenland: first serious discussions began in December.
• How will merger affect airline service? Anderson: both airlines are at the top of airline quality [Ha! Northworst -ed.] The improved connectivity, he says, will improve the traveler’s convenience and experience. “Capital structure to continue to make significant investments to enhance the experience of our customers.” Steenland: focus of airline industry recently is not on premium service but on “survival.”
• Why not shed hubs in Memphis and Cincinnati? Steenland: Memphis is smaller city, “but we’ve found the right size of operation in Memphis to make that hub profitable.” MEM is complementary to Atlanta. We can offer good service from these cities. [See here -ed.]
• If oil had remained at $60, would merger have happened? Anderson: “sound strategic basis” for merger regardless of oil price. Creates first airline in the United States with truly global scope and seamless ties.

Sorry — that’s the end of this liveblog. I had technical difficulties that cut off the broadcast until picking up at the very end. I’ll have more commentary on this later.

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It’s happening.

Merger Mania 2008 is back and kicking. Delta and Northwest have announced their merger plan. See this Bloomberg story for more. I’ll have more on this later, but for now, you can look back at my overview of the DL-NW antitrust issues. After the failure of the two airlines’ pilot groups to agree on a framework for merging seniority lists, labor issues will continue to complicate the deal. The NWA pilots have vowed to “aggressively oppose” the merger.

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Pilots cool Delta-Northwest’s merger jets — and the industry’s

BREAKING NEWS: Delta and Northwest’s pilot groups were unable to come to agreement about a merged seniority list. Delta MEC chairman Lee Moak announced the breakdown of negotiations today in a letter to Delta pilots. Without a merged seniority list, a merger might still go through (companies can force master seniority list mergers, as I’ve written before), but moving forward without agreements from labor means the merged airline’s management has to spend time, money, and energy on important operational issues that might have been resolved up front, like US Airways has been doing for the past two years.

What does this mean for industry consolidation? Mergers are probably off. It was reported that United-Continental was ready to move forward as soon as Delta-Northwest was announced (due to Northwest’s golden share in Continental), but that combination will now be scuttled. In the end, I fear that the merger mania was really a plan to goose stock prices, not actually create value. The hyped capacity cuts are coming anyway, thanks to airlines needing to shed planes and routes that don’t make money at $110/barrel oil (see Mike Boyd’s current weekly commentary). With capacity cuts coming to an already-trim industry, I don’t see the added value of mergers anymore. RIP, Merger Mania 2008.

Hat-tip to Things with Wings, where I first caught this story. After the jump, choice excerpts of the letter.

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Oberstar on mergers: “Hell no!”

In a BusinessWeek op-ed, House Transportation Committee chairman James Oberstar (D-Minn.) has come out firmly against airline mergers involving the big six.

Yet this latest round of rumored mergers, which includes a United-Continental scenario, as well as a Delta-Northwest combination, is significant. It would mean further consolidation in the airline industry, further reductions in choice for consumers, and probably fewer flights, fewer jobs, and higher fares.

I think Oberstar’s jumping the gun here. The Justice Department will do a full review of any proposed merger. (See here, and see my analyses of Delta-Northwest and United-Continental.)

Deregulation held out the promise of a market-driven industry that would give rise to a host of new entrants, bringing more competition, lower fares, and better service. The immediate aftermath of deregulation saw the expected flurry of airline startups and new market service. That activity, however, was short-lived.

Actually, deregulation did bring new entrants to markets, introduce more competition, and lower fares. Service may or may not have improved (premium service certainly has), but you get what you pay for. Lower fares are a form of better service. And what does he mean by “short-lived”? Changes in the industry have been pretty much constant since 1978. There has never been any shortage of airline startups and new service. It’s a very dynamic industry, and since deregulation, that has redounded to consumers’ benefit.

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Delta-Northwest: merger on?

A Delta-Northwest merger is close at hand, according to a Financial Times report. Delta will, apparently, be the surviving carrier and brand, Delta CEO Richard Anderson will remain in the top job, and Northwest CEO Douglas Steenland will join a merged management team.

With these developments in mind, let’s look at the antitrust implications of this merger. (I laid out the basics in a recent post.) The first concern of the Justice Department is whether a merger significantly increases concentration in a particular market or city-pair. Northwest already operates fortress hubs, and Delta has a few itself. Competition will be limited between hubs in a unified carrier: Minneapolis-JFK, Atlanta-Detroit, Minneapolis-LAX, Seattle-JFK, and the like. For example, a combined Delta-Northwest would control 94 percent of market share between Cincinnati and Orlando, according to the most recent Consumer Air Fare Report. But even so, the Justice Department will consider the presence or possibility of competition. The busiest destination from Memphis (a Northwest hub), for example, is Atlanta. The combined Delta-Northwest would only control 69 percent of this market. Competitor AirTran offers a vigorous schedule of services to Atlanta. The biggest concern might be small-market-to-small-market service—say, Jackson, Miss., to Traverse City, Mich. There are also a few towns in the South and Midwest, but not many, where airline service is offered only by Delta and Northwest and would see a single airline. Tupelo, Miss., and Muscle Shoals, Ala., are examples.

Would a combined Delta-Northwest stifle competition at their newly combined hubs? Perhaps, but analysts expect that smaller hubs like Memphis and Cincinnati will be dialed back, allowing some room for new entrants. At the combined airline’s other hubs and focus cities, budget airline competition is already present.

What about regional market concentration? (See the map below.)

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More merger skepticism

There’s a good article today in the Atlanta Journal-Constitution about value of airline mergers. The AJC focuses on lessons for its hometown airline, Delta. It confirms what I wrote on January 17, exposing the flaws in the US Airways-America West merger obscured by Wall Street’s enthusiasm. Some key points:

• “Mergers often look good on paper – and can boost shareholder profits in the short run – but the successful union of two geographically and culturally different airlines saddled with their own problems isn’t guaranteed.”
• “US Airways, though, suffered more fundamental problems. International flights – the biggest moneymakers and the industry’s future – account for only 20 percent of US Airways’ business. And customer service took it on the chin: lost reservations; delayed flights; long check-in lines.”
• “‘It was absolutely one of the messiest operations I’ve ever seen,’ [airline consultant Mike] Boyd said. ‘A merger does not enhance customer service; it makes it more difficult. Passengers pass on their problems to every employee they meet. That makes their job harder. That’s another reason why a lot of these alleged synergies don’t exist.'”
  
• “[U]nions representing pilots, mechanics, ramp and baggage handlers and flight attendants remain contract-less more than two years after the merger was announced. Dueling, east-versus-west pilots’ unions, in particular, trouble investors.”

Read the whole thing.

US Airways’ saga offers cautionary tale for Delta merger [Atlanta Journal-Constitution via Today in the Sky]

Image credit: Flickr user Cubbie_n_Vegas. Used through a Creative Commons license.

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Memphis, have no fear of a Delta-Northwest merger

I’ll be blogging more on the “merger mania” going on in the aviation observers’ world, but I wanted to draw attention to an article in my hometown paper, the Commercial Appeal of Memphis, about how airport officials are worried that a combined Delta-Northwest would drop Memphis as a hub. Delta-Northwest’s smallest hub would be in Memphis, and a combined airline would really only need Atlanta as a hub city. Almost a year ago, I wrote an op-ed for the CA in which I argued that losing the Northwest hub wouldn’t be the end of the world for Memphis. In fact, it might be very beneficial. My op-ed is archived here.

Future of Memphis airport at heart of Northwest merger discussions [Commercial Appeal, via Today in the Sky]

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