Cranky Flier on Delta buy of Alaska

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When we last saw “The Cardinal” he commented on Virgin America, stirring up a lot of emotions in the process. This time he tackles something I bet will be less controversial — today The Cardinal proposes that Delta CEO Richard Anderson should buy Alaska (the airline, not the state) as soon as it possibly can. He benefits from discussions with “The Rabbi”, another pseudonymous source who I know is well-informed. All mistakes remain the responsibility of The Cardinal.

Delta is in the middle of digesting Northwest, quite a meal. For dessert, we suggest Alaska Airlines, which should be sweeter for Delta than for any other airline in the US.
Alaska Airlines theoretically makes sense as a merger partner to just about all the major US airlines with the exception of Southwest and United. Southwest is out because a lot of what Alaska does is outside of Southwest’s mission (and Southwest has only truly merged once in its lifetime — with Morris Air — plus it took over, re-branded and then shut down Muse Air) and United is out because it would probably cause anti-trust issues, given United and Alaska’s overlapping networks on the west coast.
US Airways would probably love to merge with Alaska (any port in a storm) but there’s no way it could afford it. It might make sense for AirTran too — giving AirTran geographic reach it simply does not have at the moment. Again, AirTran probably can’t afford it. Neither of these is likely to be a serious bidder if Alaska was ever in play.
But Alaska’s value is really to the legacy majors with international systems — American, Continental and especially Delta. The value is Seattle.
Seattle ought to be a substantial international gateway, but it’s not, because the dominant hub carrier (Alaska) has no intercontinental flights. Seattle, in fact, is potentially the best hub to Asia in the whole lower 48, simply because it’s closer to Asia than any other large lower 48 city. It also results in shorter connections to many (perhaps most) US mainland points. Check it out for yourself on the Great Circle Mapper. Try a bunch of connecting itineraries from say, Tokyo (NRT) or Seoul (ICN) via Seattle (SEA) or San Francisco (SFO) to some interior point, like Kansas City (MCI) (put “NRT-SEA-MCI, NRT-SFO-MCI” in the “Paths” box and hit the “Display Map” button to compare the lengths of the paths from Tokyo to Kansas City via Seattle and San Francisco).
Buying Alaska is one of the rare situations where a merger with a largely domestic airline would yield substantial benefits to the international side of the purchaser.
Alaska’s operations would also give greater access the US west coast to each of Continental, American and Delta. But Alaska is worth more, by far, to Delta. Why?
First of all, Delta has a big Tokyo operation inherited from Northwest, so like United it has a powerful Asian operation. What Delta lacks, however, is a west coast hub/gateway to anchor its Asian operation. Delta is in the unusual position of having a lot of ways to bring people to the US from Asia but not having a good distribution system on the part of the US mainland which is closest to Asia — namely the west coast. Compare to United with its big San Francisco hub/gateway.
Continental and American also lack west coast hubs/gateways, so Alaska would be valuable to them too. However, their Asian systems are not as powerful as that of Delta, so Delta could leverage Alaska’s Seattle hub far more than either Continental and American.
Seattle has another feature that matches up well with Delta. Delta’s fleet is unusually heavy in small widebodies — it probably has too many 767s. The interesting thing about Seattle is that it’s the one large potential US hub from which the 767 has sufficient range to reach useful parts of Asia,including Japan and Korea. In other words, a Seattle hub would give Delta’s probably underemployed 767s something to do — imagine 767 nonstops from Seattle to most of the significant Japanese cities, plus Korea, plus maybe parts of northeast China, especially as Delta is adding winglets to some of its 767s to give them more range.
But wait, there’s more. Seattle would do some great things for Delta on the domestic side as well. In particular, it would fix a long-time problem in the Delta network, namely the relative weakness of its Salt Lake City hub against United’s Denver hub.
Denver has always been, and will likely always be, a far better place for a hub than Salt Lake City. Denver’s a larger city, it’s placed better for domestic traffic flows, flights from Denver are allowed to fly into New York LaGuardia airport (as opposed to those in Salt Lake City, which are not, because of the idiotic perimeter rules of the Port Authority) and so forth.
Delta has struggled for years to make Salt Lake City work in the shadow of Denver. Really the main thing Salt Lake City has going for it is that it’s the only other plausible city for a hub in the Mountain West other than Denver. It ain’t much, but it’s something.
The merger with Northwest has already helped a little bit. Delta is now more relevant to a section of the Great Plains/Upper Midwest/Montana, etc, because it can provide access from two directions with the combination of Salt Lake City and Minneapolis. It’s not as good as United’s Denver + Chicago, but it’s better than Salt Lake City by itself. The new Delta is already to likely see some market shift in its favor because of the Salt Lake City/Minneapolis combination.
Imagine, however, the influence Delta+Northwest+Alaska would exert over basically the entire northwest quadrant of the lower 48 from the combination of Seattle, Salt Lake City and Minneapolis. Washington State, Oregon, Idaho, Montana, North & South Dakota, Wyoming & Nebraska would all find the combination of Delta’s services to be a powerful competitor to United’s San Francisco + Denver + Chicago hub combination.
Neither Continental nor American would benefit the same way. Neither of them has hubs that are close enough Seattle to have a similar effect.
Lastly, it’s worthwhile noting that Alaska and Delta have similar pilot pay structures these days. You can check that out for yourselves by looking at rates at Airline Pilot Central. You can see that Delta & Alaska have similar 737 pay rates. This is important — prior to 9/11, Alaska’s rates were a lot lower than those of the “big ugly” airlines like Delta, meaning that a merger of Alaska with an airline like Delta would instantly impose significant additional costs on the Alaska route structure. That’s nowhere near the problem it once would have been.
Given the extraordinary benefits to Delta, we’d even go so far as to say that Delta would be nuts not to pursue a takeover with Alaska as soon as it is able. There are few occasions where a “fill-in” acquisition like Alaska could yield such benefits.
 

Flying the Line

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He makes some good points, like the fact that Delta does not have a big presence on the far west coast. But his city pair of MCI to Aisa leaves me scrachting my head. Alaska does not serve that route nor do I believe that there is enough flow to add it even if Delta bought Alaska.
 

Going2Baja

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In a webcast w/ Anderson he was asked why he didn't consume Alaska and his reply was no reply....not even "no comment." He just went on tot he next question.

When Alaska signed the code-share w/ DAL R.A. can out and stayed in SEA for 4 days....This was during the heat of taking over NWA. Wouldn't you think a Pres. would have better things to do than spend 4 days out of base signing a code-share?

My gut tells me the writing is on the wall...it's just a matter of time. The Alaska guys are going to HATE a relative seniority merger!

Baja.
 

Chief Pilot

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When we last saw “The Cardinal” he commented on Virgin America, stirring up a lot of emotions in the process. This time he tackles something I bet will be less controversial — today The Cardinal proposes that Delta CEO Richard Anderson should buy Alaska (the airline, not the state) as soon as it possibly can. He benefits from discussions with “The Rabbi”, another pseudonymous source who I know is well-informed. All mistakes remain the responsibility of The Cardinal.

First of all, Delta has a big Tokyo operation inherited from Northwest, so like United it has a powerful Asian operation. What Delta lacks, however, is a west coast hub/gateway to anchor its Asian operation. Delta is in the unusual position of having a lot of ways to bring people to the US from Asia but not having a good distribution system on the part of the US mainland which is closest to Asia — namely the west coast.
We've heard it all before. There has always been someone out there ready to buy Alaska. I doubt this will happen, but anything is possible. There is a major flaw in the reasoning highlighted in red. Delta already has all of the benefits of it's codeshare with Alaska, without any of the pesky overhead costs of a merger or buyout. Just look on expedia.com for a flight from SEA to DCA. Alaska isn't even listed, but Delta is (operated by Alaska Airlines). This is just another analysis from a talking head who enjoys the limelight.
 

Chief Pilot

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My gut tells me the writing is on the wall...it's just a matter of time. The Alaska guys are going to HATE a relative seniority merger!

Baja.
Baja,

I agree with part of this statement. What you should have said was that SENIOR Alaska guys are going to HATE a relative seniority merger! It actually wouldn't be that bad for a junior guy. If a merger actually happens, you and I would probably benefit from it.
 

SkiFishFly

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What about Alaska buying another airline to avoid being swallowed by Delta? They have the money or could get the financing. They are profitable and might not want to be absorbed by the likes of Delta. I think it is possible.
 

S5Dispatch

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I know Alaska has looked and talked about buying another airline but now they say they arent looking.
 

jtf

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I don't see how much traffic they could really add with the buy since they already have the code share like the above posts say. Delta already does PDX to NRT and SEA to NRT and these flights are already fed by Alaska code share. If they want to add more Asia flights, they can, but if there were enough traffic to do it, they would have done it already. In reality they are shrinking capacity by replacing the A330 with the 767 at least out of PDX.
 

Baze

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Actually, I heard from a good source that Alaska's routes are going to be divied up between American, Continental, and Delta. The reason is that none of those airlines wants to buy Alaska outright.

I think 2-3 years from now, we'll see a mega-merger between AMR, CAL, & DAL.
Until then, we'll just get chopped up and sold in pieces.
 

Green Banana

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Actually, I heard from a good source that Alaska's routes are going to be divied up between American, Continental, and Delta. The reason is that none of those airlines wants to buy Alaska outright.

I think 2-3 years from now, we'll see a mega-merger between AMR, CAL, & DAL.
Until then, we'll just get chopped up and sold in pieces.
Huh? Alaska has a Code-share with all three of these carriers. Why would they all cancel the agreement and go against AS? You think they will all three work together and agree to put a carrier out of business with a lower CASM? A mega merger? This whole post makes no sense or cents.
 

PeanuckleCRJ

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Actually, I heard from a good source that Alaska's routes are going to be divied up between American, Continental, and Delta. The reason is that none of those airlines wants to buy Alaska outright.

I think 2-3 years from now, we'll see a mega-merger between AMR, CAL, & DAL.
Until then, we'll just get chopped up and sold in pieces.
Do what? Now that is a good one....
 

Baze

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Hmpf... Maybe I should have included *sarcasm* or a :) at the conclusion at the end of my post.

I'll blame my shenanigans on flying 5 days straight and the 31 hours of credit that I already have for the month.
 

Green Banana

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ya, that post was not like you, I should have picked up on it. Be safe.
 

Baze

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Green Banana,

Apologies... didn't mean to bait you with my post. People who have known me a
long time know that I can be quite sarcastic.
 

PeanuckleCRJ

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Got me on that one, Baze! The sad thing is that I've heard people seriously speculate on things like that before.
 
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