What's Wrong With This Merger?

If the goal is to acquire & eliminate a competitor, shouldn't US be making a bid for Jetblue, or Airtran, or Spirit, or even SW? These competitors pose more of a threat to US than DL. Isn't DL a weaker competitor than most of the aforementioned carriers? Sure none of those are for sale or in bankruptcy, but money does talk... ... ...
Not really. What do any of them have that we really want or need...?

Granted, you would gain market share in a few secondary markets, but nowhere near the presense that Delta would offer overall.

It would be more like USAir's acqusition of PSA (which gave us west coast market access, but not control). It would not give us any increased strength against our real competiton in the future... The remaining "Big Two" legacies.

And the vacumn of a missing low cost operator would quickly be filled in by another low cost operator. (like SWA replacing PSA in California) It is much more difficult for a legacy to enter a primary market, and take on the established carrier than it is for a LCC to "cherry pick" point to point.

Legacies compete from their Hubs (ATL is our main competition for CLT for example), and that competition is already limited by geographic and political limitations. (Think of ORD as a competitor for ATL).

IMO it is the endless competition for the higher revenue passengers (via RJ's) that has had as hard an impact on the bottom line as has LCC's competition for the lower revenue passengers.

And when you think of RJ competition raiding U's market share, one Airline comes to mind.
 
Not really. What do any of them have that we really want or need...?

Granted, you would gain market share in a few secondary markets, but nowhere near the presense that Delta would offer overall.

B6 brings ~100 A320's and a bunch of Embraers as well as JFK slots and soon to be built terminal, for example.

SW is all but just about done serving the so-called secondary markets and is begining to enter places like PHL, IAD, Denver. LAX, MDW, HOU are not secondary markets either. As far as B6 is concerned, I would not call JFK a secondary market.

I think that for US (and Delta, and even New Delta, etc), carriers like SW and JB pose a bigger threat in the future. So if US has billions to play with, why not do something outside the box: acquire & eliminate a more dangerous ompetitor?
 
B6 brings ~100 A320's and a bunch of Embraers as well as JFK slots and soon to be built terminal, for example.

SW is all but just about done serving the so-called secondary markets and is begining to enter places like PHL, IAD, Denver. LAX, MDW, HOU are not secondary markets either. As far as B6 is concerned, I would not call JFK a secondary market.

I think that for US (and Delta, and even New Delta, etc), carriers like SW and JB pose a bigger threat in the future. So if US has billions to play with, why not do something outside the box: acquire & eliminate a more dangerous ompetitor?
No, you are still missing it. jetBlue offers point to point competition, not systemwide competition. If we bought up evrything jetBlue had, it would not allow us to dominate JFK or BOS, would it...?

Yes, we might lose out on the guy that is willing to drive 2 hours to save 300$, but not the passenger that is connecting thru a Hub to travel to Stockholm (that could go thru ATL or ORD).

No, besides SWA "moving in" to replace AirTran or jetBlue were we able to buy them (making the whole purchase a waste of time), it just is not as worthwhile on the risk/reward payoff as buying another legacy that is in Bankruptcy.

Seriously, you think controlling the entire Southeast would not trump buying up jetBlue...?
 
For what my opinion is worth, Rico is right. As far as I can tell, this whole US/DL proposal is about eliminating a major competitor who will by all appearances have a lower cost structure than US and becoming the dominant carrier in the eastern 1/3 of the country and across the Atlantic. After all (and as Rico says), this merger won't broaden the network much so that $900+ million a year in revenue synergies has to come from somewhere else - higher yields made possible by being the dominant carrier in many medium/small markets.

Which brings us back to a discussion Rico and I had a while back - how dominant can a carrier become without the DOJ requiring divesture of enough assets that you aren't so dominant after all?

Jim
 
No, you are still missing it. jetBlue offers point to point competition, not systemwide competition. If we bought up evrything jetBlue had, it would not allow us to dominate JFK or BOS, would it...?

Yes, we might lose out on the guy that is willing to drive 2 hours to save 300$, but not the passenger that is connecting thru a Hub to travel to Stockholm (that could go thru ATL or ORD).

No, besides SWA "moving in" to replace AirTran or jetBlue were we able to buy them (making the whole purchase a waste of time), it just is not as worthwhile on the risk/reward payoff as buying another legacy that is in Bankruptcy.

Seriously, you think controlling the entire Southeast would not trump buying up jetBlue...?

I somewhat agree with what you're saying, and a US/DL combo could be a winner - definitely in market share but what about profits? What I'm saying is that if US has the money to play with, then why not do something radical, buy a true LCC outfit like B6, and if you don't like their point to point service from BOS and JFK because it does not fit into your hub and spoke model then close those stations, get rid of the the employees there (no unions) and move the aircraft to PHL/CLT/PHX to augment the current fleet and replace your older ones. This would also reduce some capacity and allow some raising of the fares in the region. Ofcourse B6, SW, etc are not for sale - so it may be pointless to discuss this anyway.

US could also gain the southeast by spending the money to improve its overall operation & product, and draw customers to/thru its hub in CLT (& promote and use the the advantages of the * alliance codeshares, etc.)

A US/DL merger may take such a long time to fully integrate
that the other carriers (LCC and legacy) could easily move in and take away the southeast.


Which brings us back to a discussion Rico and I had a while back - how dominant can a carrier become without the DOJ requiring divesture of enough assets that you aren't so dominant after all?

Jim

That's a good point - AA did not seem to have any major regulatory/government problems in acquiring TW. Was this because TW was bankrupt (and therefore US acquiring DL will also be a relative regulatory breeze) or was it because there was relatively little overlap between the 2 carriers?
 
As far as the AA/TWA merger, TWA was indeed basically bankrupt (as opposed to just in bankruptcy), so the "failing carrier" aspect came into play. TWA had also divested so many assets attempting to survive that they were almost exactly the size of HP mainline when measured by ASM's - awfully small for an international carrier. Finally, as I recall, there wasn't a lot of overlap with AA - at least not anything like a US/DL merger would have.

To your question about other legacy/LCC's taking away the southeast, there's been nothing preventing them from doing that anytime they wanted - yet they haven't. Look at geography and the small/medium markets where a US/DL combination would have 75-100% of the market. FAY-NYC would be inconvenient on anyone other than UA (thru IAD) or B6. CAE-MGM would be the same. ORF-JAX, SAV-MEM, the list goes on and on. Other than UA's IAD hub for Southeast-Northeast traffic, no other airline has a convenient hub to service traffic within the region except Airtran (and they'd be a very small player compared to a US/DL combination).

I did a little figuring, and if eliminating competition thru merger could result in yield increasing 0.1 to 0.2 cents, that's the nearly $1 billion a year in additional revenue. As long as we're competing with DL and what looks like will be their lower costs, that fraction of a cent in additional yield may not be available. Of course, that yield increase won't be spread evenly across all passengers. Those in markets with LCC or other network competition won't see it, while those in "captive" markets will see a bigger increase.

Jim
 
...

Which brings us back to a discussion Rico and I had a while back - how dominant can a carrier become without the DOJ requiring divesture of enough assets that you aren't so dominant after all?

Jim
I appreciate your analysis of the situation. I’d agree that US Air can't afford to pass on the opportunity. As far as the dice and slice, it's an interesting question. The DOJ has a broad window and is made up of people that don't see things in black and white nearly as clearly as shades of green. I don't have a membership at that golf course so I couldn't tell you how to expect the greens to play.

But then I am skeptical. I would propose that DOJ's decision in the previous attempt to join two big carriers (UAL US) was more influenced by Untied's squeal of fear and change of heart when the economy tanked than in the facts of the merger. It has some similarities to statistics. What answer are you looking for so I can develop the questions?
 
Actually, the DOJ had announced that they would seek to block the merger but hadn't filed suit yet when UA abandoned the merger. Would UA have backed out anyway? Don't know.

If you read some of the concerns the DOJ had about the UA/US merger then look at the US & DL route maps, it'll definitely make you wonder what they'll think if this reaches them. It'll also make you giggle at some of the statements made in the various presentations and "For the Record" newsletters.

Here's a pretty short overview of how the DOJ looks at potential airline mergers - a presentation given by the Deputy Assistant Attorney General of the Antitrust Division to the RAA Presidents Council Meeting about a year ago:

Presentation

Jim

ps - Hey - I'm a pilot so I always have more answers than questions..... :lol:
 
Actually, the DOJ had announced that they would seek to block the merger but hadn't filed suit yet when UA abandoned the merger. Would UA have backed out anyway? Don't know.

Jim

ps - Hey - I'm a pilot so I always have more answers than questions..... :lol:


I think the DOJ just doesn't like UA. Remember in the early 90's when it bid for Eastern Airlines? US withdrew the bid once it learned that the DOJ was going to intervene and attempt to delay the sale for purposes of further antitrust investigations.
 
MMB:

In my opinion, the best merger's are the ones that provide a quality product to its customers and provides the best job security, pay, and benfits to its employees.

From what I have seen at the new US Airways, this could happen between Delta and US Airways.

Why do you believe "here are parings out there that make good sense, but DL/US isn't one of them. There is no benefit to Delta or Delta people there?"

Regards,

USA320Pilot

I'd really like to know what,if any position RalphCramden has at this late date.He is an industry sage if you weren't aware of that.
 
More "public posturing"?

MEC CODE-A-PHONE UPDATE
January 2nd, 2007

This is Arnie Gentile with a US Airways MEC update for Tuesday, January 2nd, with seven new items.

Item 1. As required by Section 3 of the America West pilot group's contract, the America West pilots received a three percent pay raise yesterday. We are pleased that the AWA pilots received their raises and other benefits from the US Airways merger, but we, the US Airways East pilots, are still making the very bottom-of-the-barrel wages that were negotiated during the 9/11 bankruptcy era. After subsidizing the AWA merger, Mr. Parker continues to treat us as his step-children pilots, as he continues to utilize our sub-standard wages to subsidize the billions he wants for future mergers.

Your MEC leadership finds it contemptible, and totally unacceptable, that management has no problem in offering the best of the three pilot contracts out in front of the proposed Delta merger while they continue to treat the US Airways pilots, day after day, like 2nd class members of this team.

We are 14 months into JNC talks with the Company, and despite the rhetoric the company has put out to our pilots and the press, there has been no significant progress in achieving a fair, single contract that is even worthy of consideration for ratification by the AAA and AWA pilots.

We know you have had enough. You have demonstrated through your participation in the November 16th event in Charlotte that you are willing to stand up for a contract that compensates us at the rates and benefits that we deserve. Another Strike Prep event will be announced shortly and we will have yet another opportunity to publicly drive this point home. If you are happy with the status quo, then continue to go about your business. But if you have had enough and are tired of our way-below market rates, our work rules, and the Company's posturing to investors and Wall Street about our contract, then get involved, stay informed and join us in this 24/7 fight for a better contract.

Item 2. <Snip>

Please remember we still have 1,656 pilots on furlough with 175 of those pilots working at Jets for Jobs carriers.

Fly safe and thank you for listening.
 
Didn't the company tell the East pilots they could have the AWA contract if they wanted it?
 
That's what I understand - the HP contract cover to cover. Of course, that would mean taking the bad with the good, like paycuts for the 757/767/330 drivers and weaker scope as just 2 examples.

Jim
 

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