Sonny Crockett
Well-known member
- Joined
- Aug 9, 2005
- Posts
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A lot of people are stressing right now. Here is an article in Forbes today that might help you remember that no deals have been made. Thus, relax, drink a beer and save for the day we really need to fight.
Grounding Airline Mergers
Tom Van Riper, 04.28.08, 5:45 PM ET
Where does the game of airline musical chairs go next?
Possibly on break. United Airlines and Continental Airlines (nyse: CAL - news - people ), recently thought to be close to a deal, have called things off.
So what happens now? Will United go back to merger talks with U.S. Airways (nyse: LCC - news - people )? Will Continental pursue a deal with American? How about U.S. Airways-American? Then there's Northwest-Delta, already at the altar.
To hear analysts tell it, any of these deals could happen. Just not right away. For now, the industry needs to catch its breath and deal with record fuel prices and a slumping economy. That means keeping its eye on the ball.
Any merger announcement means months of regulatory review followed by a long implementation process, on top of hefty fees to lawyers and investment bankers. "It would be nothing but a distraction for the next several months," says industry analyst Bob McAdoo of Avondale Partners.
McAdoo, who spoke to senior Continental managers over the weekend, said the company pulled out of its proposed deal with United mainly because it wants to wait for things--like the price of oil--to settle down a bit first.
Feeling pressured to make a move during desperate times just wasn't sitting well. Management's collective opinion: Should oil prove to be in a price bubble, one that sends it back to $85 from nearly $120, then we can think about it.
Not that mergers are the cure for what ails the major airlines anyway.
"The real solution is reducing available seat miles by another 20%," says Calyon Securities airline analyst Ray Neidl. "That's the case with or without a merger." With oil prices showing no immediate sign of letting up, prices simply have to rise. Hence, more supply needs to be taken out of the marketplace. A deal that helps eliminate duplicate hubs can make capacity reduction a bit easier, Neidl points out, though it's hardly a panacea.
There are some potential marriages on the horizon, according to McAdoo, that would make sense. U.S. Airways strength across much of northern U.S. makes it a potentially viable traffic feeder for American Airlines' (nyse: AMR - news - people ) power in European routes. American has recently completed a new state-of-the-art terminal at New York's Kennedy Airport, aimed at beefing up its international power. In the same way, U.S. Airways could be attractive to United, a leader in the Asian markets along with the new Delta-Northwest entity.
Continental, meanwhile, has the attractive Newark, N.J., hub that everyone craves, along with a strong South American presence. Should the airline ultimately go back and reconsider a United deal, it would mean instant access to lucrative Asian routes. United has maintained a strong presence in Asia since purchasing routes from Pan Am two decades ago. With the region becoming increasingly important to business travelers, those routes are now the biggest carrot the carrier has to appeal to a potential merger partner.
"If what we end up with is six legacy carriers being reduced to three, then two of them will have an Asian presence," McAdoo says, citing Delta-Northwest and whichever carrier ends up partnering with United.
Expect Continental or U.S. Airways to be that partner. But not until 2009.
Grounding Airline Mergers
Tom Van Riper, 04.28.08, 5:45 PM ET
Where does the game of airline musical chairs go next?
Possibly on break. United Airlines and Continental Airlines (nyse: CAL - news - people ), recently thought to be close to a deal, have called things off.
So what happens now? Will United go back to merger talks with U.S. Airways (nyse: LCC - news - people )? Will Continental pursue a deal with American? How about U.S. Airways-American? Then there's Northwest-Delta, already at the altar.
To hear analysts tell it, any of these deals could happen. Just not right away. For now, the industry needs to catch its breath and deal with record fuel prices and a slumping economy. That means keeping its eye on the ball.
Any merger announcement means months of regulatory review followed by a long implementation process, on top of hefty fees to lawyers and investment bankers. "It would be nothing but a distraction for the next several months," says industry analyst Bob McAdoo of Avondale Partners.
McAdoo, who spoke to senior Continental managers over the weekend, said the company pulled out of its proposed deal with United mainly because it wants to wait for things--like the price of oil--to settle down a bit first.
Feeling pressured to make a move during desperate times just wasn't sitting well. Management's collective opinion: Should oil prove to be in a price bubble, one that sends it back to $85 from nearly $120, then we can think about it.
Not that mergers are the cure for what ails the major airlines anyway.
"The real solution is reducing available seat miles by another 20%," says Calyon Securities airline analyst Ray Neidl. "That's the case with or without a merger." With oil prices showing no immediate sign of letting up, prices simply have to rise. Hence, more supply needs to be taken out of the marketplace. A deal that helps eliminate duplicate hubs can make capacity reduction a bit easier, Neidl points out, though it's hardly a panacea.
There are some potential marriages on the horizon, according to McAdoo, that would make sense. U.S. Airways strength across much of northern U.S. makes it a potentially viable traffic feeder for American Airlines' (nyse: AMR - news - people ) power in European routes. American has recently completed a new state-of-the-art terminal at New York's Kennedy Airport, aimed at beefing up its international power. In the same way, U.S. Airways could be attractive to United, a leader in the Asian markets along with the new Delta-Northwest entity.
Continental, meanwhile, has the attractive Newark, N.J., hub that everyone craves, along with a strong South American presence. Should the airline ultimately go back and reconsider a United deal, it would mean instant access to lucrative Asian routes. United has maintained a strong presence in Asia since purchasing routes from Pan Am two decades ago. With the region becoming increasingly important to business travelers, those routes are now the biggest carrot the carrier has to appeal to a potential merger partner.
"If what we end up with is six legacy carriers being reduced to three, then two of them will have an Asian presence," McAdoo says, citing Delta-Northwest and whichever carrier ends up partnering with United.
Expect Continental or U.S. Airways to be that partner. But not until 2009.
