Experts predict Comair may be sold

[wms]

An analyst, not in an official capacity with DAL, gives his opinion on something he knows nothing about (Mr Grinstein's words) and 5 pages later we're doing more to whip-saw ourselves than the company ever could do on its own.

If there were a spin-off it would have to be attractive to investors. The most attractive would be to merge ASA and CA and guarantee them revenue. Who is going to invest in a company that doesn't have a guarantee from its primary source of income? Yes, DAL would have a 10 year contract to keep us exclusive, but it would also include a commitment for revenue from them, not to keep us happy, but to keep the investors happy. We would probably still keep our travel privileges and travelnet just like coex did after the spin-off from CAL.

If there were CH11, it would have to be approved by the BK courts. More analysts say this is unlikely than say there will be a spin-off. DAL needs to get concessions quickly before the economic dip ends. That's why they're pulling the stops and want it all at once.

The only thing this has done is turned us against each other. DCI WOs want out, and DALPA wants us on food stamps to ease their own pain. They say this will give us industry standard pay.

At ASA a:
5 year 50 seat CA makes about $60.
5 year 70 seat CA makes about $67. $7 more for twenty more seats.
Theoretically at that scale a:
5 year 90 seat CA would make about $74.
and a 5 year 100 seat CA would make $78.

What does a 5 year 100 seat CA at DAL make? A $7 increase for every 20 seats from 50 to 90, then double the pay from 90 to 100. The real gap is not between ASA/CA and the other regionals, but in the increments of pay between the regionals and mainline. I don't advocate bringing mainline pay down, but I do believe the increments in pay should be consistent across the DAL/DCI fleet.

 

[Ganja60Heavy]

Delta still using the "old rules"

Dudes;

All this talk is predicated on hub-and-spoke remaining as-is forever.

It ain't happening.

You think Delta would risk losing control of a large fleet of RJ's which have allowed it to keep the hub-and-spoke system alive this long, way past it's expiration date?

Delta has become a no-frills carrier with sullen employees and high costs, and it ain't ever gonna make it in todays' world.

If it sells CMR or ASA, assuming some idiots are stupid enuff to buy them with all the requisite strings attached to a sinking ship, how can it survive as a large-city-only hub carrier??

And a stand-alone CMR or ASA would walk all over mainline with low-cost labor, despite higher CASM, since there are MANY MORE cities available to the RJ that a SONG-jet cannot justify.

And all this talk about "fairness" is hot bleed air. Nothing in life is fair. You get what you can thru NEGOTIATION, and if you are too stubborn a parasite (like DL pilots), you kill your host and you both perish.

/G

 

[wms]

.

And a stand-alone CMR or ASA would walk all over mainline with low-cost labor, despite higher CASM, since there are MANY MORE cities available to the RJ that a SONG-jet cannot justify

That's what Midway thought. Then to fix it they brought on the 73s, but too late and at a time when they still had to pay a high price for them. An all-RJ airline can't provide itself the volume to cover its costs in a comptetive market. It would need to be in markets without competition where it could increase prices. That's why right now the best mission for the RJ is to bring in pax from smaller communities to connect on larger aircraft with better margins.

If Indy makes it it won't be because of the RJs. It'll be because of the Airbusses

 

[Ganja60Heavy]

That's what Midway thought. Then to fix it they brought on the 73s, but too late and at a time when they still had to pay a high price for them. An all-RJ airline can't provide itself the volume to cover its costs in a comptetive market.
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That's a good point, wms, but the wild card here is POST- 9/11, where the majors are the underdog, empty planes lose money, loyalty is gone, and there are LOTS of "relief" airports near big cities where people will pay a slightly-higher ticket price to avoid dealing with the main cluster-airport.

Midway was a boutique airline which was already mortally-wounded at 9/11. It had already failed during the BOOM of the late 90's.....remember when Delta made a Billion in profit?

It's a whole new ballgame now, and those conditions (bottomless wallets, pre-internet, oligopaly tactics) will never return.

 

[standaman]

Delta will not sell these guys unless somebody holds a gun to thier heads.

 

[General Lee]

Good chance they will sell them if the heat gets too hot. Every stock holder would ask why they did not if Chap 11 occurred and there was no sale. That is the truth.

Ganja,

Yes, the plan has changed---and that is the RJ plan. Look at the successful airlines at the moment---Southwest, Jetblue, and Airtran-----all have no RJs or will be getting rid of them. Jetblue can see that the 100 seater is the smallest thing they would want to support the low cost model. They think 100 seats will still spread out the costs low enough for them to squeeze out a profit even with low fares and TVs. The others will have to do the same---and they will when they get the costs down--which is inevitable. The name of the game now is low fares and lots of seats. The passengers are back now---this summer is supposed to be better than the summer of 2000. 50 seat RJs take up space on the taxiways and approach paths---and can't bring in enough revenue. But, there will always be certain markets that will support them---the ones with no LCC competition---but they are growing.....

As far as bottomless wallets, etc---you are probably right--those days may be over. But, there will always be a need for business class and first class on some flights to attract that high end customer that will be out there--especially with the growing economy. But, expect to see more Song and Ted type flights to go after that one segment of customer that is growing---the "I only care about the price..." type of passenger. That is why Song and TED are out there---to try to take some of those people away form the LCCs---and Song was supposedly profitable last quarter--so it may be working.....

Bye Bye--General Lee

 

[sleepy]

General,

The few rich are getting richer, and more of us are getting poorer under King George. The demand will be for more Greyhound bus in the sky type service. That is where DAL needs to be an industry leader. They should end the FF program, sell the international routes, eliminate Business Class, and further compact the coach seating to cram even more scumbags into the aircraft. That is where the money will be in the future.

 

[Splert]

Maybe I missed it but the question is not if COMAIR will be sold but instead who would buy them and at what price.

The code share business model is not what is used to be and will probably will never be. Put that in a HP12C and find the IRR of cash flows from a potentially declining or dying business model plus scope and what do you come up with. A very low sales price or no buyer.

Good Day

 

[Heavy Set]

What is the benefit of full ownership???

There is no reason to maintain full ownership of ASA and Comair. Continental does not fully own COEX (it maintains a decent-sized share though) but it enjoys the same operational benefits as it had before given its contractual service. CHQ provides service to Delta equal to or better than Comair and ASA from what I have heard - and yet it is not owned by Delta. ACA's current DoJet operation out of CVG "does the job" and yet it is not owned by Delta.

Why shouldn't Delta SPIN OFF (through a stock offering to the public) Comair and ASA to the public? It would result in much-needed cash to Mother Delta (sure, less cash than 3-4 years ago - but some cash is better than no cash near bankruptcy) and yet operational benefits would remain because Delta would have to guarantee a contract for a certain amount of time (probably at least 3 years for the stock valuation). COEX is the model in this case.

Reducing ownership would have these direct benefits for Delta:

1. Needed cash from public offering (probably $300-500 million)
2. Maintain same operational benefits as before (like COEX)
3. Delta can shift some debt to the new regional entity (from balance sheet to balance sheet)
4. Delta would reduce its future debt financing obligations - new entity would finance new RJs
5. New ASA/Comair would likely need to bid for feed contract in the future like CHQ and Skyway - it would reduce costs and boost profits for DAL - otherwise you leave money on the table by maintaining more expensive feed...
6. Fewer HR headaches - if Comair strikes, increase CHQ feed

Above all, operational benefits remain in tact - that is the same message from Sam Buttrick - airline analyst at Smith Barney. It actually makes a lot of sense when you think about it. UAL doesn't directly own its feed. Continental only partially owns its feed. USAirways owns a lot of its feed and it continues to bleed. AirTran will soon cut its CRJ feed.

Playing devil's advocate - why should Delta be responsible for all of those regional airplanes and employees when it doesn't have to be? Why shouldn't Delta outsource to lower bidders like Skywest, CHQ and Skyway given that they do provide good and dependable service like ASA and Comair? The LCC environment has changed ALL OF THE RULES and lower cost will be the name of the game.... Never say never. I am sure DAL management is already considering these sobering facts...

 

[sleepy]

DAL really should just become a reservations network. They could contract all of their flying out to the lowest bidder. They might be able to pull it off under Ch11.