Recent trends affecting industry consolidation

[WorldTraveler]

Jamake makes some good points regarding consolidation in the industry in the JFKLGW thread but since they have nothing to do with JFKLGW, I’m starting a new thread.

No one wants to merge with UA unless they get the Asian routes and UA knows it.

UA's Asian routes will stay with the company until it is no longer possible for the company to remain as a going concern. It would take UA being reduced to a shadow of its current self in order for them to be desperate enough to sell off their crown jewels.

Interestingly, the pension reform legislation that just passed makes it less likely for someone to acquire one of the carriers that still have DB pensions while making it more likely that one of the carriers that have terminated them will be acquired. While significantly extended, pensions are still a liability on a company’s books that make them less attractive to outsiders. Conversely, most mergers in the airline industry have been accompanied by pension terminations. Pension reform is one advantage that will favor AA, CO, NW, and DL in consolidation efforts.

I have always said that AA, CO, and DL will be survivors in the industry but I might extend that to say that NW will be a survivor through an acquisition of US.

I’ll admit talk about consolidation is highly speculative and any of us can logically argue why we support our positions but it’s fun to do nonetheless. Hopefully, no one’s toes will get stepped on.

 

[flyhigh]

I'm not sure I'd agree nobody wants UA...CO does. And, if CO did merge with UA, they'd have to almost definitely be the survivor which would mean their union contract trumps UA's. CO knows it's too small to survive long term. Adding DEN back, a small IAD, LAX/SFO, and ORD (close CLE) would be a great network.

AA is pretty much don't merging for a while...for many reasons. I think US/HP is as well given that they're still tackling the current merger.

That leaves DL/NW...a lot of long time DL's always thought this would be a great fit. It may have been maybe 15 years ago when DL had great relationships with its employees and it would be seen as a good thing by NW people. In today's world, you'd be asking for a world of mess. There are some benefits...dump the DC9's and a bunch of the MD80's. Dump MEM and CVG!!! Add a better Asian presence to DL...not sure it's worth it. Add lots of Europe to NW...regulatory hurdles due to standing KLM relationship.

Quite frankly, I see asset sales being the more likely scenario. Most likely candidate is NW's Asia to AA.

 

[donttouchthebeauty]

I'm not sure I'd agree nobody wants UA...CO does. And, if CO did merge with UA, they'd have to almost definitely be the survivor which would mean their union contract trumps UA's. CO knows it's too small to survive long term. Adding DEN back, a small IAD, LAX/SFO, and ORD (close CLE) would be a great network.

AA is pretty much don't merging for a while...for many reasons. I think US/HP is as well given that they're still tackling the current merger.

That leaves DL/NW...a lot of long time DL's always thought this would be a great fit. It may have been maybe 15 years ago when DL had great relationships with its employees and it would be seen as a good thing by NW people. In today's world, you'd be asking for a world of mess. There are some benefits...dump the DC9's and a bunch of the MD80's. Dump MEM and CVG!!! Add a better Asian presence to DL...not sure it's worth it. Add lots of Europe to NW...regulatory hurdles due to standing KLM relationship.

Quite frankly, I see asset sales being the more likely scenario. Most likely candidate is NW's Asia to AA.

LOL - I dont think (IMO) that anyone will be buying anyone. Unless of course someone tanks and then they will buy bits and pieces. Unfortunately, I dont think CAL will be buying UAL.. Merger maybe, i doubt that too though, UAL is scoping delta - They dont want an airline with pensions etc, merge with someone that has dumped them, and DAL has the largest southern hub along with JFK., MUCH MUCH more desirable, and dont forget that if there is a merger CAL, has no merger protection with the IAM, in their contract... HMMMM wonder what that would mean? I guess i would be flying Tel Aviv... LOL.... BTW UAL wont be as near as easy of a merger partner as US and HP due to the fact that they have a rather large presence in most places unlike US HP...

 

[NewHampshire Black Bears]

Jamake makes some good points regarding consolidation in the industry in the JFKLGW thread but since they have nothing to do with JFKLGW, I’m starting a new thread.

No one wants to merge with UA unless they get the Asian routes and UA knows it.

UA's Asian routes will stay with the company until it is no longer possible for the company to remain as a going concern. It would take UA being reduced to a shadow of its current self in order for them to be desperate enough to sell off their crown jewels.

Interestingly, the pension reform legislation that just passed makes it less likely for someone to acquire one of the carriers that still have DB pensions while making it more likely that one of the carriers that have terminated them will be acquired. While significantly extended, pensions are still a liability on a company’s books that make them less attractive to outsiders. Conversely, most mergers in the airline industry have been accompanied by pension terminations. Pension reform is one advantage that will favor AA, CO, NW, and DL in consolidation efforts.

I have always said that AA, CO, and DL will be survivors in the industry but I might extend that to say that NW will be a survivor through an acquisition of US.

I’ll admit talk about consolidation is highly speculative and any of us can logically argue why we support our positions but it’s fun to do nonetheless. Hopefully, no one’s toes will get stepped on.

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OK, World Traveler, I'll "buy" your logic about pensions/reforms affecting possible M/A's !!

However, the "Number One Thing" that (is as we speak) affecting M/A's(or the lack of them so far) is OPEN SKIES !!

NO legacy will make "a move" on a possible M/A's until "the Ink is dry, on Open Skies" !!

(In the meantime, everyone is "hoarding" $$$ CASH)


??????

NH/BB's

 

[TechBoy]

No one wants to merge with UA unless they get the Asian routes and UA knows it.

UA's Asian routes will stay with the company until it is no longer possible for the company to remain as a going concern. It would take UA being reduced to a shadow of its current self in order for them to be desperate enough to sell off their crown jewels.

And how could someone merge with UA and not get the Asian routes? And considering that UA is profitable, why would they want to part with the most profitable part of their business?

For the moment, I'm predicting no mergers now that all the majors are profitable again. Maybe someone could do something with NW as part of an emergence play, but they are such a mess in terms of fleet and labor relations that it may not be worth doing -- unless you planned on parking all the DC9s and DC10s and having a big RIF.

But for long term health of the industry, there does need to be some mergers among the majors to reduce the overhubbing that currently exists. The present "good times" in the industry is merely a reflection of the majors collectively reducing domestic capacity enormously through BK. That will not be repeated and as the LCCs increase capacity, the majors will lose their pricing power again until they are right sized. If AA/NW and UA/CO happened, then we might get down to an efficiently sized market among the majors. But not likely to happen.

 

[Ch. 12]

Maybe someone could do something with NW as part of an emergence play, but they are such a mess in terms of fleet and labor relations that it may not be worth doing -- unless you planned on parking all the DC9s and DC10s and having a big RIF.

You mean duplicating what AA did when it "acquired" TWA?

 

[NewHampshire Black Bears]

You mean duplicating what AA did when it "acquired" TWA?

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Easy there Ch. 12, easy !!

Can't blame AA for 9/11(you remember the pictures on your TV, in NYC and DC, don't you ??)

Pilots, AMT's, and FSC's were given a "ratio" of sorts !!!

I agree, the F/A's got screwed.

NH/BB's

 

[Ch. 12]

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Easy there Ch. 12, easy !!

Can't blame AA for 9/11(you remember the pictures on your TV, in NYC and DC, don't you ??)

Pilots, AMT's, and FSC's were given a "ratio" of sorts !!!

I agree, the F/A's got screwed.

NH/BB's

AA was planning to dismantle STL long before 9/11. The acquisition of TW was like the police dept buying drugs...AA was just trying to keep TW's assets "out of the wrong hands".

 

[whatkindoffreshhell]

NWA's flight attendants will strike (as they should) and NW will shut down. Those NWA flight attendants are right and courageous.

AA will cherry-pick the carcass for the Asian routes and perhaps the cargo ops since both airlines view cargo as a revenue center and not just gravy like their legacy brothers.

One of the Skyteam members will somehow rescue DL. They must. Both the DL franchise and ATL hub are too valuable to that alliance.

Once NW disappears then CO should be released to find a new dance partner. Perhaps UA, but UA name would be the survivor. Give the smart and realistic CO managers control of a great airline.

 

[FWAAA]

AA was planning to dismantle STL long before 9/11. The acquisition of TW was like the police dept buying drugs...AA was just trying to keep TW's assets "out of the wrong hands".

Then why did AA wait until November, 2003 to give up on STL? If AA had really wanted to dismantle it quickly, then it would have happened in May or June of 2001.

 

[flyhigh]

...I think AA generally wanted to keep STL open to put flow through pax through there and give local ORD pax all the opportunity in the world to fly AA instead of UA. That could be easily accomplished through good revenue management.

As for M&A activity, I wouldn't be so sure UA would be the surviving name. UA is bigger, older, etc, but the CO brand has a lot going for it these days. Unlike HP/US, where HP had no reason to keep the America West name (especially given its regional nature), Continental is vague enough to remain.

I think CO is hoping for NW to fail for just the opportunity to be free to make moves without NW saying anything. NW is arrogant enough to fight something even if CO is the buyer.

 

[WorldTraveler]

I don’t believe any airline really wants to merge right now. Given that 4 out of the 6 big ones are owned by their former creditors who are more interested in preserving their financial interests, the testosterone in the board room will be kept in check.

AA doesn’t need to merge with anyone; they just need to focus their Asian strategy and make it work. CO is smart enough to know how much damage a merger with do to them.

None of the current airlines need financially to be saved from anyone. They are making money (which is a rarity over the past few years). Mergers are inherently problematic and very costly for airliners; you don’t undertake them unless the merger can be done very easily (not gonna happen with any combinations) or there is no other choice (such as AA-TW).

Asset sales are far more likely but that requires that at least one carrier has to fail badly enough that they are willing to start selling their prime assets (no one has talked about who will get NW’s MEM hub). You don’t sell your prime assets as long as you intend to stay in business.

Hostile takeovers are highly problematic in the airline industry and it is very possible that an airline could invoke antitrust charges against a carrier that tried to acquire it, esp. in the previously mentioned US-DL acquisition. Given the US carriers are already pretty large, there are few people that want to see larger or fewer airlines. It is the airlines that want to remove inefficient capacity (although they have done that very well so far) and they want to gain access to new revenue sources (read countries) other than what they currently serve.

Open Skies could potentially open up the US industry to foreign consolidation but I’m not holding my breath that it will happen in the US very soon. Airlines have always been viewed as symbols of national strength and pride. The US people are nowhere near ready to start selling off their key assets to foreign companies.

Hello, Fly.
What kind of merger activity have you been thinking about these days?

 

[donttouchthebeauty]

As for M&A activity, I wouldn't be so sure UA would be the surviving name. UA is bigger, older, etc, but the CO brand has a lot going for it these days. Unlike HP/US, where HP had no reason to keep the America West name (especially given its regional nature), Continental is vague enough to remain.



Oh get real "flyhigh" - first off UAL has much more of a prescence in major cities and the big players like Chicago - San Fran - LAX - NRT - Hong Kong - Australia - and Frankfurt as well as LHR and IAD And DEN - The contienental name doesnt even have half the presence that UAL does. Trust when the United name is kept especially due to the asian presence. No doubt -

 

[FA Mikey]

In Asia no one knew who United was 20 years ago. The Pan Am name and logo was the 2nd most recognized in the region and the world. United got by, and so would anyone else if the circumstances dictated it.

 

[Fly]

Don't forget that DELTA is the INSOLVENT airline now....NOT United. Pan Am (as well as TWA, went out)


How much cash does Delta have compared to United? Oh yes, Never mind.... NONE!!!