Posts Tagged ‘mergers’

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.”


  • 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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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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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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“Higher P, lower Q.”

Hat-tip to Daniel Hall, who writes: “I think Tyler is being cheeky here.”

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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. (more…)

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Happy Valentine’s Day!

Once upon a time, there were two airlines. Each one was happy in its own way. Each had service to most parts of the country; each enjoyed extensive international connections, the former to Asia and the latter to Europe. Each had shiny new planes and hard-working staff members. But each airline sensed a void. They were missing something. There was a void in their hearts that could only be filled by. . . .

. . . each other.

(The investors will love the romance, and the wedding will pay off in the short run, but is the marriage built to last? Alas, no one has these thoughts on Valentine’s Day.)

Enjoy this video, based on the romance between Virgin Express and SN Brussels that produced Brussels Airlines.

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As part of Merger Mania 2008, United and Continental are now in talks to merge. United has been eager to merge with someone — anyone — for a few years now, but Continental has been reluctant to do so, preferring to remain profitably independent and well-managed unless industry-wide consolidation forces its hand. There are any number of challenges to a merger, from labor to systems integration, but one of the biggest hurdles is the Justice Department’s antitrust division, which can put the kibosh on any proposed matchup. I previously wrote about the criteria the department uses to evaluate proposed mergers, so let’s look now at how a United-Continental merger would stack up.

As far as reducing competition in markets or city-pairs, United and Continental are unique in that all their hubs — save the smallest in a combined carrier, Cleveland — are in markets with two or three major airports and/or with lots of network and discount airline competition: (more…)

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