Merger Info

tinpadro

Member
Jan 21, 2004
30
0
I wonder what is the likely scenario that United could claim pensions and other issues are so insurmountable and USAir on its last legs is so bad as well that the US governement would let the two merge into one saving many jobs? I am not trying to beat a dead horse but the thought comes to mind when Tilton stated earlier that the US government should relax its merger policies among airlines. I envision such a possible plan since it was squashed pre 9/11, it may fly post 9/11 with some sort of pension waiver thrown in to appease the employees and/or government.

:unsure:
 
I think we're only going to see 3-4 legacy carriers left. I think UAL-US, CO-DL, AA-NW and whoever else decides to merge. It could be AA-CO and DL-NW instead.
 
Tying two boat anchors together isn't going to make them float. The last resort for U was 2 years ago, but Dave Siegel squandered it. U is so badly led and managed that anyone would have to be crazy to put any more money in it.

UAL has a chance to right itself, but U would only damage it more. U's executives are getting outsmarted and out manuevered by the cutthroat competition on the east coast. In addition, they've managed to completely alienate any goodwill among the long-time employees that are left.

The practical problems of merging employee groups at a time when Lakefield is trying to pay for his management team's ineptness and skyrocketing fuel bills on the backs of employees, I would think take a very very long time and a huge fight. This is time that US Airways doesn't have. They are hemmoraging cash and it's only going to get worse. Lakefield's public comments about the morbid future of the company is going to severely damage holiday bookings. To my mind, his public pronouncements were even more dumb than some of those from Goodwin. Would you book a holiday trip on U right now??? I know I wouldn't.

The sad fact is that there is WAY too many airline seats in this country right now. A good chunk of them need to go away.
 
Well said Winglet...

In short, any kind of UAL-UAIR merger would end up being similar to AA-TWA... where the combined UAL-UAIR shrinks dramatically, and whoever is at the bottom of the seniority list ends up out of work anyways.
 
$50 oil and $200 round trip coast to coast are not a mix. Neither are $50 oil and a plane filled to 80% capacity at todays fares.

Look at our performace for last month, greater than 80% filled seats and still a $56 million loss. A merger with US would be murder, besides the court would not let it happen anyway, we can't even get our own business plan together.
 
Consistency scares me, as does the saying: "Insanity is doing the same thing over and over, expecting a different result". The cost of fuel goes up-- ticket prices remain flat. Gee, I guess the employees can help pay for the additional fuel costs...or else...what a concept! I wonder how the LCCs would handle their overbooked flights if someone were to be crazy enough to absorb the higher fuel costs by charging more--thereby losing 'all their loyal customers'. Maybe the LCCs would be stupid enough to reimburse their DB'd volunteers $400 on their $125 ticket to get on the next plane like we do. I just don't understand how these companies can lose money... I think U and Ual in a rubber room...forget it!
 
LiveInAHotel said:
I think we're only going to see 3-4 legacy carriers left. I think UAL-US, CO-DL, AA-NW and whoever else decides to merge. It could be AA-CO and DL-NW instead.
[post="186036"][/post]​

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Hotel,
I respectfully disagree.

IMHO, the legacy scene will like something VERY close to this.

US(sadly) GONE.
UAL 1/2 it's present size.
DL (something resembling) 1/2 it's present size.
CO "Very" close to BK-11.("house of cards" FINALLY reveled)
AA Larger than it's present size.
NW Larger than it's present size.

As usual with this "lunatic business", TIME will tell.

NH/BB's
 
NewHampshire Black Bears said:
+++++++++++++++++++++++++++++++++++++++++++++++++

Hotel,
I respectfully disagree.

IMHO, the legacy scene will like something VERY close to this.

US(sadly) GONE.
UAL 1/2 it's present size.
DL (something resembling) 1/2 it's present size.
CO "Very" close to BK-11.("house of cards" FINALLY reveled)
AA Larger than it's present size.
NW Larger than it's present size.

As usual with this "lunatic business", TIME will tell.

NH/BB's
[post="186144"][/post]​

NH/BB,

With large debt payments coming due at AA and the lilkely hood that UAL will dump its pensions and have a cost advantage over the TX carrier, how do you see them growing? If the bar is continued to be lowered on operating cost, AA will not be able to survive with a cost structure that out paces the industry.
 
All interesting thoughts here. I side with those who do not see a merger in UA's near future.

The industry as a whole has troubles. Yes, including the LCC's. Current oil prices are out of control. They hurt EVERYONE. Those that were hurting, hurt more. Those who managed to eck out a small profit (LCC's) will start feeling the pain.

As much as some people claim that the consumers now dictate what we can charge, and high price tickets are a thing of the past, etc. etc. etc. the bottom line is that the consumer is a little "price drunk". The fares are unsustainable in the long term.

Here's why: You simply can't fly an airplane for the same cost as driving a car or bus. It's not just labor costs. With rising fuel prices, security costs, TAXES (more than the tobacco industry), maintenance, catering, cost of equipment & infrastructure, etc. it still costs "x" # of $ to move a piece of alluminum from point A to point B. Even Jet Blue is starting to see downward trends in revenue due to fuel & competition according to a recent article. They are expecting further downgrades to expectations in the coming months.

LCC's can't charge a premium for service, so they rely on full planes and low costs. The problem is that as relatively new entrants compared to the legacies, their costs can only go up. They dilute this trend by expanding and adding to the bottom. It may take a few years, but eventually this expansion will slow. Anyone who thinks there is unlimited growth potential for LCC's is mistaken. The same article I referenced stated that if an LCC took over a legacy's market, their cost would rise to similar levels. An LCC's model only fits certain types of markets. If they grow out of their niche they are no longer LCC's.

So here are some potential scenarios as I see them:

A- If a couple of legacies close up shop, the industry consolidates, and LCC's double or even tripple in size, then demand will outpace supply, costs will rise, and consumers will have to pay more for tickets.

B- If legacies beat the LCC's at their own game and lower costs while the LCC's costs rise, they will meet somwhere and in the middle and consumers will have to pay more for tickets.

C- If the governmet lowers taxes on the industry (not likely) or pays for it's own national security, it would level the playing field, legacies would regain market share, LCC growth will slow, and consumers will have to pay more for tickets.

D- If all legacies fail and turn into International Flag carriers only, LCC's take over the entire domestic market, costs rise as they mature, and consumers will have to pay more for tickets.


No matter what happens, IMO prices will eventually rise and stabilize somewhere between the extremes of the 90's and the the current rock bottom prices. There is an industry shake down happening. It's been going on since 2001 and will probably continue for another couple of years. International events, fuel prices, elections, all play into the mix.

With no money for buyouts, any consolidation would come from some airlines shrinking or failing, and others moderately adjusting to take up some, but not all of the slack. A merger of UA and US might bring with it some "economies of scale" or "synergies" as some call it. But with US on the brink, and UA still working on it's own plan, any combination of the two would not be through a merger. We all saw what happens when you take your eye off the ball during critical times. No one is interested in making that same mistake twice.

Sorry for the long post.
To my fellow UA employees, keep your eye on the ball. Lets keep doing what we do best and hope for some stability by next summer.

767jetz
 
I agree that the dynamics of the LCC are not immune to cost problems. But I also suspect that many LCC's simply are not structured to compete against other LCC's AT ALL. There's a symbiotic relationship between LCCs and legacies. That's what makes the U experiment interesting to contemplate (if you put aside reality for a moment). Ted is also interesting. While, I'm not sure what UAL's vision for Ted is.. or even UAL as a whole, I think I can piece together U's desparate strategy. U is looking to be the next generation of LCC in one giant leap frog.... the LCC with international connectivity and small market breadth. Merging U and UAL (like the seemingly far-fetched AMR purchase of UAL) is really just a strategy for liquidating the capacity in a orderly fashion, with some attention to the impact on employees and customers.... not something that is likely to be high on the priority list of creditors.
 
This is a great discussion.

Unfortuneately for the rest of the industry, I think Southwest is clearly in command of the domestic industry. I believe fares will rise when Southwest wants them to. Clearly, Southwest has been willing to keep fares low in order to keep the loses mounting at the competition while Southwest continues tred water, with very small profits, barely above break even.

So I think when Southwest wants to raise fares, fares for the industry will rise. However, Southwest has shown incredible restraint in raising fares. I believe this is because they understand that passing the increased fuel costs on to the customer, at this time, is another blow to demand. Demand for airline travel has been affected by security concerns, perceived security checkpoint hassels, reduced disposable income for most Americans (i.e. the effects of energy costs like natural gas and gasoline). So we have all these things working against demand (i.e. less people willing to travel at all, or at higher fares which were deemed reasonable a few years ago). So, raising fares, just adds to the reduction in demand... which won't be good for any airline.

In addition to all of this, Southwest is in the enviable position of having a large cash balance to cushion any losses over the next few years, as well as a very efficient business model to minimize those loses.

So I think Southwest gets to call the shots on this, and I have no idea if they will make an effort to raise fares. I tend to think that they won't. The only reason I can think of for Southwest to raise fares is to maintain their "1XX straight quarters of profitability." But the folks at Southwest are smart enough to understand that while that is a great thing to be able to say, its not a requirement in the airline industry...