WSJ Article from the Borg Leaders

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Travelagent

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Aug 16, 2007
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"Strength is irrelevant. Resistance is futile. We wish to improve ourselves. We will add your biological and technological distinctiveness to our own. Your culture will adapt to service ours." --

"Your life as it has been is over. From this time forward, you will service us." - "Lower your shields and surrender your ships. We will add your biological and technological distinctiveness to our own. Your culture will adapt to service us. Resistance is futile." :( (no, this wasn't part of it but it should be)
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Sorry if this has already been posted-just found it interesting....
SOME MYTHS ABOUT AIRLINE MERGERS
By RICHARD ANDERSON and DOUG STEENLAND
April 16, 2008; Page A19

We know that the merger we've just announced between Delta Air Lines and Northwest Airlines will be much debated in coming weeks, and many voices will weigh in on the merits of the transaction. That is healthy and part of the process.

Here's our view of where things stand.

The U.S. airline industry is at a crossroads. One choice is to continue on the road now traveled, with network carriers whipsawed by the high price of oil; nationwide competition from discount carriers; and increasing competition from large, well-funded foreign airlines that are increasing service to the U.S. through Open Skies agreements that have liberalized aviation markets around the world.


The other choice, the path we are taking, is to combine our two complementary route systems into a single global network at a time when we are both in a position of strength. The combined company will be more stable and be better able to grow to meet the challenges of the future, both at home and abroad.

There is no question that the track record of airline mergers has been mixed, but the entire industry is the product of consolidation. The mergers that were driven by overlapping route systems and hub cutbacks had a hard time integrating their operations. Complementary ones – like Delta-Western in 1987 – have gone more smoothly. The industry that has resulted is the most competitive in the world, and provides Americans with far more airline service, at much lower prices, than before the industry was deregulated.

Here are some myths and misperceptions about airlines mergers:

Myth One: Airline mergers cause big job losses.

Reality: Bankruptcies and high oil prices have caused significantly more job losses than mergers. The last recession, combined with the terrorist attacks of Sept. 11, 2001, caused a wave of bankruptcies that resulted in a loss of over 150,000 jobs just among the U.S. network carriers. Indeed, in the first half of 2008 alone, record fuel prices have led to the shutdown or bankruptcy filings of five U.S. carriers. We will furlough no frontline employees as a result of this merger.

Myth Two: This deal will jeopardize employees' benefits.

Reality: The merger will create a financially stronger airline, better positioned to protect jobs, compensation and benefits. Delta and Northwest worked side by side with their employees to obtain passage of the Pension Protection Act of 2006, to make pension funding more affordable. The transaction will make employee pensions and benefits more secure.

Myth Three: Prices will go up as a result of the merger.

Reality: In this industry, prices are set by market forces and competition. There is very little overlap between our route networks and the merged airline will face intense competition throughout its system.

In the U.S., discount carriers have more than doubled their capacity since 2000; they now account for one-third of domestic traffic, and the legacy carriers must match their ticket prices or risk losing business. Southwest now carries more passengers annually than any other airline; and even after a Delta-Northwest merger, Southwest would continue to have the largest share of domestic passengers, with no single U.S. carrier holding more than a 20% domestic passenger share.

Myth Four: We need to close hubs to justify synergies.

Reality: This merger will be different from any actual or proposed airline merger of the recent past. Those mergers were often predicated on achieving cost savings by eliminating hubs. Thanks to our complementary route networks, we will keep all of our hubs open. The synergies are largely driven by expanded route networks and operational efficiencies.

Myth Five: Consolidation will result in service cutbacks for customers.

Reality: You are already seeing airlines being forced to cut capacity across the U.S. because of sky-high fuel prices, not because of mergers. In the first half of 2008 alone, record fuel prices have forced the industry to reduce by more than 1.6 million the number of seats available to passengers. The merger, by producing a stronger competitor, will make service cutbacks less likely than if Delta and Northwest remained separate.

Our combined airline will serve more than 140 small communities in the U.S. – more than any other airline. From the small communities and the cities we serve, customers will be able to reach virtually any place in the world with fewer connections, as we bring together our two geographically distinct route systems.

Myth Six: This is all being driven to fatten profits for Wall Street and hedge funds.

Reality: This has nothing to do with hedge funds. It is about paying employees fair wages, reinvesting in new products and services for customers, earning a return for shareholders who have committed their capital, and being a good corporate citizen.

An unprofitable airline cannot do any of these things. Collectively the industry has lost more than $29 billion since 2001. Major U.S. carriers are once again losing money. Rising fuel costs have offset savings from cost-cutting and restructuring initiatives. Volatile fuel prices have fundamentally changed the economics of the airline industry. Building a stronger route network is an antidote to the boom-bust cycle that has plagued the airline industry, and is the best way to reverse the trend of service cuts that is happening as a result of record fuel prices.

Consolidation in the industry may be the only alternative to another wholesale round of turmoil and dislocation, the likes of which we are already beginning to see. Combining Delta and Northwest, with our complementary domestic and international routes, will create a strong U.S. competitor to the foreign airlines – while preserving jobs by becoming a more financially secure airline. This is good news for our customers, the communities we serve, and our employees.

Messrs. Anderson and Steenland are CEOs of Delta Air Lines and Northwest Airlines, respectively.
 
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