Siegel Expects Airline Mergers

[DCAflyer]

US Airways Group Inc. chief executive officer David N. Siegel said yesterday that he expected consolidation to lead to three major U.S. airlines with broad national networks and a "swarm of low-cost carriers" as consumers demand lower fares.

Shuttle routes among Washington, Boston and New York such as those flown by his airline eventually will be served by discount carriers at lower prices, Siegel told an executive group in McLean, Va. US Airways, the dominant carrier in Philadelphia, has said it may sell assets including its shuttle.

Read Article Here

 

[robbedagain]

i wouldnt put it past that this team of mgmt wants to merge this airline if they cant get what they want without giving up anything in return!

 

[767jetz]

i wouldnt put it past that this team of mgmt wants to merge this airline if they cant get what they want without giving up anything in return!

Yup, that about sums it up.

So does the last paragraph:
"When the inevitable forces of consolidation kick in, it is equally important that we have a competitive cost structure," he said. "Otherwise, we will be the awkward teenager at the school dance, hoping someone will come talk to us, but going home disappointed and lonely."

Just my 2 cents, but IMO Siegel knows that his days as an airline CEO are numbered, and his ultimate goal is to survive long enough for the industry to turn the corner so he can sell the farm. I also think this is why US APLA did an "about face" on concessions. IMO it's no longer about saving US. Those with the most to lose (senior management, RSA, senior pilots, etc.) are trying to lose a few pounds, fit into a new dress, and putting on the makeup so they won't be the last one standing when the music stops.

 

[AlabubbaRegional]

i wouldnt put it past that this team of mgmt wants to merge this airline if they cant get what they want without giving up anything in return!

Not to burst any bubbles out there but if US manages to stay afloat this year it WILL be merged or bought especially if mgmt gets what they want. That's the major reason they're keeping it alive. Siegel said, "... when the inevitable forces of consolidation kick in, it is equally important that we have a competitive cost structure. Otherwise, we will be the awkward teenager at the school dance, hoping someone will come talk to us, but going home disappointed and lonely." Y'all hate to hear it but United is the likely partner and the surprise for the union that Bronner talks about is the farmout language in the UAL contract that would be shoved down the US mechanics throats with the merger/buy-out. I hope y'all can prove this wrong but time will tell.

 

[diogenes]

Bubba,

I expect you're pretty near right.

 

[BoeingBoy]

Just a few thoughts on Siegel's "visionary" concept of industry consolidation.....

How long have various analyst's and "seers" been predicting consolidation? Well over a decade. Wasn't AMR's purchase of TWA "consolidation", or US Air's purchase of PSA (the original) and Piedmont? There are other examples - how far back do you want to go?

Likewise, the "fact" that there will eventually be only 3 network carriers. That theory also goes back at least a decade, with the 3 usually being AMR, UAL, & DAL.

The latest thinking by the "seers" predicts consolidation across borders - the aliances we see today are merely the first steps. As ownership rules relax and the days of the state sponsored flag carrier come to an end, it is said that international "mega-carriers" will be formed. Time will tell.

Siegel predicting consolidation is about as visionary as predicting that the sun will rise tomorrow.

Jim

 

[usfliboi]

lol I think the point is here, if we want to survive via being bought or buying that our house is in shambles. No one will buy us as is and thats the undertone of the message i heard. So the alternative is he is saying..... wanna wilt away ? or merge and be a healthy carrier.... Sounds like good sense to me . Do i want that ? Well better than alternative!

 

[BoeingBoy]

usfliboi,

Yes, to partake in the consolidation that is forcast we certainly need to be around. However, if Siegel is as visionary in running this airline as he is in forecasting the inevitable consolidation, we don't have to worry about being the awkard teenager standing along the wall at the dance - we won't even be at the dance.

Jim

 

[RowUnderDCA]

usfliboi,

Yes, to partake in the consolidation that is forcast we certainly need to be around. However, if Siegel is as visionary in running this airline as he is in forecasting the inevitable consolidation, we don't have to worry about being the awkard teenager standing along the wall at the dance - we won't even be at the dance.

Jim

So Siegel's predictions of the future are unconvincing BECAUSE other 'experts' agree with him? (Sorry, I think I quoted the wrong post.)

logic alert

Look I'm sure that there is a lot of irrationality at CCY, mostly fear and anxiety, I suspect. But, where's the evidence that he is foolish to perceive the industry situation as he describes in his analysis. (I seem to remember reading something that sounded a bit dubious to me.... but not by much.)

In any case, my intuition tells me that CCY is concerned that making this death-defying recovery from U's spiral is VERY difficult and they might go beyond structural tolerances. GEEEZ... for 20 years U has been building the OPPOSITE of a competitive operation, prefering to retreat to the closest thing to monopoly markets that they can find (the seminal event being the U/PI merger).

So, know after procrastinating and taking the easy way out for 2 decades and AFTER 9/11, some crazy new executives decide to take the task of trying to change the business plan to COMPETE (that means to compete with today's competitors in markets were the customers are) and deal with U's unions and pull out of this death spiral, it's not particularly shocking that they are being very careful how they roll this thing out. (Not to mention that he's right about the industry changing more rapidly than most predicted.)

Look, could it be that U execs are worried that if they change the business plan for easy pricing before nearly matching other carrier's cost structure that they'll just bleed to death!

Furthermore, isn't it possible that U management is concerned that if other legacy carriers get the IDEA that U is going to institute such a move a bit before U gets its costs in line that THEY will go for the jugular to kill U before it can do much damage to their yields?

Isn't it possible that U management thinks that the financial community will not only focus financiing on U's competitors, but deny new financing to U AND pull existing financing to U, if U hints at doing this before getting a sustainable cost plan in place?

My point is that I suspect that this is like threading a needle and MANY if not MOSt of the industry observers think it can't be done. So, go figure that U management is not exactly announcing routes and fares and aircraft orders and schedule changes, when to do so would be basically, saying "OK, go ahead and shove the knive in, cuz we're bleeding already."

There's just somethings that seem so clear. Like, the reason U's prior hybrid model was only successful during very high boom times is because the aircraft that U was flying between small cities and medium hubs was too big and also internally incompatible. That's the reason to have dismantled the prior hybrid structure... but don't rebuild it WRONG again, get financing for appropriate aircraft and build it right.... get proper costs and go into the markets were the customers are (don't hide your high costs and fly to the three remaining markets on the east coast where you can charge monopoly prices!

I have no idea abou the front line management/operational practices, but I suspect that there have been 20 years of less than brilliant practices there too. Let me know if anyone really thinks those things can be changed with a memo.

 

[BoeingBoy]

RowUnderDCA,

First, I didn't mean to imply that Siegel was wrong about consolidation. If my words were poorly chosen and gave that impression, I apologize. I was merely saying that he was not uttering some new revalation.

Our "crazy new executive" has been here nearly two years, had the benefit of bankruptcy, and gotten significant concessions from labor. I haven't seen a "business plan to COMPETE" yet, have you?

Maybe you're right. Maybe management is keeping the plan hidden from view to keep other airlines from getting a glimpse and pouncing before it can be implemented. Oh, wait, those other carriers are pouncing anyway, aren't they.

Management must be keeping the plan hidden so that the financial community won't pull the plug. That's it! But isn't management saying that we're on the verge of having the plug pulled now, without showing the plan?

Poor management. They can't implement simplified fares due to the high cost structure. I'm sure that those carriers that are actually simplifying fares are doing it because their costs are so low they don't mind their revenues decreasing. How benevalent of them. They couldn't be doing it because simplifying the fares could actually INCREASE revenue, could they?

Jim

 

[funguy2]

Just a few thoughts on Siegel's "visionary" concept of industry consolidation.....

How long have various analyst's and "seers" been predicting consolidation? Well over a decade. Wasn't AMR's purchase of TWA "consolidation", or US Air's purchase of PSA (the original) and Piedmont? There are other examples - how far back do you want to go?

Likewise, the "fact" that there will eventually be only 3 network carriers. That theory also goes back at least a decade, with the 3 usually being AMR, UAL, & DAL.

The latest thinking by the "seers" predicts consolidation across borders - the aliances we see today are merely the first steps. As ownership rules relax and the days of the state sponsored flag carrier come to an end, it is said that international "mega-carriers" will be formed. Time will tell.

Siegel predicting consolidation is about as visionary as predicting that the sun will rise tomorrow.

Jim

Amen.

"Consolidation is inevitable"

- Since 1978.

What nobody seems to remember is the consolidation which occurred in this industry without companies being acquired. For example:

Braniff, 1982. While the airline was eventually reorganized (at about 1/10 the size of original Braniff), this bankruptcy began the consolidation of AMR's dominance at DFW... Yet nobody acquired Braniff

Eastern, 1991. While certain key assets were sold, nobody acquired this airline, but the consolidation largely led to DAL's dominance of ATL, and the birth of AirTran

Midway, 1991. While Northwest made a bid, nobody acquired this carrier. Yet the consolidation pushed Southwest to dominate Midway Airport, and gave rise to ATA as a scheduled carrier.

Midway, 2001. Nobody bid on this carrier, it just changed plans and eventually liquidated. Southwest and AMR solidified their positions at RDU, and the NE-Florida traffic carried by Midway is now flowing over other hubs on other airlines.

There are lots more examples too... Pan Am 1991. Pan Am/Carnival - late 90's. Vanguard and National Airlines in 2001.

THE POINT: Consolidation does not equal mergers. Consolidation can come in the form of one company going out of business and another company going after that market.

Unfortunately for US Airways, at this point, the company is becoming like Eastern... even though it has name recognition, and a ready made route-structure, nobody wants to touch it with a ten-foot pole. As Homer said about Bart, "I want nothing to do with that train wreck!"

 

[RowUnderDCA]

They couldn't be doing it because simplifying the fares could actually INCREASE revenue, could they?

Jim

I don't know the answer to that question. But I do know that U management thinks they know that the answer is that changing to easy fares as recently as last quarter would have been a net loss for U. I guess I spend so much time during the day, not thinking about what I would do in a particular situation, but rather what is a reasonable course of action. It seems to me that it is not apparent that U management's course of action in the last couple of years has been crazy, other than to take the job in the first place. U is a risky endeavor, with little hope of success. I don't buy the idea that U management has been shown to be stupid or mean. I will buy the prospect that our country's labor/wealth relationship is out of whack. But the labor movement in the US can't manage to get a pro-worker congress. That's another story.

My impression is that U management thought, not unreasonably, that the changes in the market would not be so swift as to require a pricing model change right now! If U management thought that the revenue environment would be better, then, yes, they were wrong. And they should have reduced costs even further.

I do share you wonderment at how U management states that it was happy with it's non-labor cost targets. I think Seigel has stated that U was doing a good job with its cost targets.

 

[BoeingBoy]

Row,

Here's what I just posted in another thread:

"Southwest could have operated US Airways’ domestic flights for $3.2 billion less than US Airways spent, including $1.5 billion less in labor costs."

That comes from Unisys R2A Transportation Management Services, and is talking about the pre-bankruptcy US Airways.

Most (though certainly not quite all) of the $1.5 Billion in labor concessions has been achieved ($1.2 Billion plus pilot's pension). It's that $1.7 Billion on the non-labor side that has been only partly addressed.

Jim

 

[E-TRONS]

USFLIBOI:

Just how naive are you?? UAL stews have a hundred years of seniority. Duh....You will be on the street right next to all the mechanics. But at least the dear company will be saved.....right???? :blink:

Please stop already.......You're killing me !!!

 

[usfliboi]

My senority would be just fine thank you