General Lee
Well-known member
- Joined
- Aug 24, 2002
- Posts
- 20,442
The US Airways Offer For Delta
The Variety Show Is About To Begin
Small Communities: Get Ready For Less Air Service
This is a holiday week, so we'll probably have to wait until
next week for the debut of the circus that is sure to
develop from the US Airways hostile offer for Delta.
But, start it will. And it'll have all the wonderful
characteristics of a 1950s TV variety show. Sort of a
latter-day Ed Sullivan Show - entertainment, big-name acts,
appearances by stars from stage, screen, and Wall Street,
you name it.
There'll be dancing bears in the form of Wall Street
analysts, jumping through hoops in perfect obedience to
their handlers. Magicians making data disappear and re-
appear in reality-defying forms. Puppet acts, too, with
politicians doing routines dictated by whichever way the
dollars may go. Wild animal acts, with fierce state Attorney
Generals growling the merger blues, at least until they're
tossed a service bone to shut them up. Chorus lines of big-
name East Coast "advisors" singing whatever tune they're
paid to belt out, and bringing in the best back-up
orchestras of jive numbers money can buy.
Yup, Ed Sullivan would be proud. So, unfortunately, would
P.T. Barnum. That's because no how much glitz, glitter,
promises and paid PowerPoint presentations will be spit out
to hype this deal, it's still a bad one for the consumer. No
matter what good intentions US Airways may have, the fact
remains that the consumer won't benefit from this deal.
This Deal Is Not Comparable To the US/HP Combination
Much will be made about how the America West acquisition of
US Airways is the poster-child for this Delta deal. Nothing
could be farther from reality. There is a fundamental
difference between an asset-buy and this proposed merger of
Delta and US Airways.The hostile takeover offer from US
Airways is a full-blown, bona fide, overlay merger - one
that, as admitted by US Airways, will result in less, not
more.
On the other hand, the acquisition of the original US
Airways by America West Holdings was essentially an asset-
purchase, and one that represented very little overlap. For
that reason, we saw it not as a potential disaster, but as a
potential winner, and our analyses were relatively positive
about the potential for that combination. Click Here and
scroll to May 25, 2005.
First, in 2005, America West Holdings bought a dying carrier
that represented very little route or competitive overlap.
That's 100% different from this current deal, where there is
competitive overlap up the whazoo, particularly in smaller
communities that have near zip chances of getting new
competition should this merger go through.
Second, in the first US Airways deal, HP acquired a carrier
that for all indications was heading smooth out of business,
and in the process of doing so, HP preserved enormous
amounts of service, and retained enormous amounts of
competition on the East Coast. America West Holdings was
the cavalry that arrived to save the day, not to mention
thousands of jobs in the East. That, too is 100% the
opposite of what this hostile take-over of Delta represents.
Finally, it needs to be kept in mind that despite admirable
progress, the integration of HP and US is not yet complete.
Adding Delta into the mix - well, draw your own conclusions
regarding the immediate operational "efficiencies" this
might bring.
Amateur-Act Myths. The media should be aware that there are
a number of mantra-myths that are the bedrock on which
proponents are pushing this deal. They are repeated over and
over again, mostly by Wall Street types and academics, to
the point that they are rarely questioned, even though
they're nonsense.
Myth One: We Need Consolidation. Six months ago these folks
were still claiming that the industry had "over-capacity."
That being proven nonsense by high demand and 80% load
factors, the tune has changed.
Supposedly, these folks now claim, there are too many seats
out there to support a "healthy" airline industry, even if,
at 80%+ load factors, everything is essentially full, and
airlines are now pushing into the black.
More hypothetical nonsense. Not only is the system full, but
for the first time in memory, comprehensive network airlines
are well positioned for an economic downturn, with parts of
their fleets or parts of their capacity mix that can be
easily pulled-down. And this time, there's limited amounts
of net-new CNC capacity on order.
What these people are really saying is that the merger will
reduce competition, and - in paper theory only - supposedly
reduce the numbers of seats in the market. That, they opine,
will strengthen the industry by limiting production. That
means they'll carry fewer passengers, but being able to
charge them more. This at a time that major carriers are
moving into the black. Not only does history refute this
theory, particularly in high-density markets, but Congress
and the DOJ will need huge on-going doses of this mind-
numbing nonsense if they are going to eventually believe it.
Myth Two: Mergers Will Make Airlines Stronger, Causing More
Mergers. Don't buy into the hype that there are huge
immediate operational synergies in this deal that will
render the New Delta a competitive wonder.
The fleets are the economic equivalent of the Hatfields &
McCoys. 777s and A-330s. 737s and A-320s. And a hodge-podge
of other aircraft. To the creatures that inhabit some parts
of the financial world, this means nothing. But when real-
world realities of maintenance programs, training
curriculums, parts inventories, not to mention union bid-
and-bump issues, are considered, what this entity will
represent on the day the merger is consummated will be one
big wallowing marketing target for its competitors.
It is a fact, however, that the sheer millions that
financial institutions can make in merger deals will likely
increase the possibility of some new offers made to combine
other carriers. But it won't be as a result of the
competitive threat that a combined US-DL entity would
represent. That's because the revenue and operational
synergies are years away.
The main "gain" would be in cutting the competitive flying
that today exists between DL and US. For example, the seven
ORF-ATL Delta flights and the seven ORF-CLT US Airways
flights might be cut down to some combination of eight or
nine total flights. If they can retain the same ridership,
they get "synergies" in costs, maybe. But not in increased
revenues, except to the extent that the reduced capacity
allows fare increases between some city pairs.
Myth Three: This Merger Won't Reduce Competition. The last
point above brings up the issue of competition - this merger
will decimate it.
Communities, politicians, and state AGs should be prepared
this coming week for a Minnesota-denuding blizzard of paper
"studies" and analyses, all purporting to represent that
combining Delta and US Airways won't result in higher
concentrations or in less competition.
There will be references to esoteric "indices" like "HHI"
and references to domestic market share, and the claim that
LCCs will be there to keep competition at a razor edge.
Ray Charles could see through this one.
We'll start with this: when you remove one consumer option,
competition is reduced. Trying to claim that the consumer
can go to another vendor somewhere else (like that LCC-
served airport an hour away) doesn't change the fact that
one less airline choice is in the marketplace, and one less
choice means a reduction in competition.
Small Airports: Reconsider That Growth Plan. Using macro
ASM/RPM comparisons, and generalized market-share analyses
is a great way to bamboozle local politicians and some of
the media. But when the dust settles, it won't do diddly to
change the fact that small and medium size communities are
going to take this merger on the economic chin.
A couple of examples...
Here's just a snapshot of what smaller communities can
expect from the grand "benefits" of this merger. The
percentages next to the cities in black represent the
combined capacity share that this new entity would have in
the market.
Sure, it could be countered that the New Delta will reduce
capacity, thereby reducing concentration at a given airport.
But that just means fewer seats in the market, and there's
no guarantee that other airlines would increase capacity. In
fact, that's a pipe dream - the other carriers are in most
cases feeding their hub banks, and increasing either unit
capacity or frequency might not be possible or even in their
own best interests.
Note that these are just a few examples, and when actual
market shares (as opposed to capacity-shares) are
considered, the picture can be a lot worse. Charleston, SC,
would see over 70% of its passenger traffic controlled by
one airline. Montgomery, 75%.
It gets worse. The cities in red are those that will find
themselves with NO competition at all - just the New Delta.
Put another way, competition won't be reduced in these
markets - it will be eliminated. And, please, don't let your
intelligence be insulted when some paid wind-up toy
"analyst" or zipper-brained financial type tries to tell you
that an LCC will jump into these markets. Southwest and
jetBlue don't have a hankerin' to rush into Lynchburg.
Let's stop the jive - silly macro numbers aside, it's
smaller communities that will see less competition, less
capacity, and in most cases, virtually no chance of other
carriers jumping in. That is a reduction in competition, and
no amount of shameful number-engineering will change that.
Or, replace what's lost.
Cont.....
The Variety Show Is About To Begin
Small Communities: Get Ready For Less Air Service
This is a holiday week, so we'll probably have to wait until
next week for the debut of the circus that is sure to
develop from the US Airways hostile offer for Delta.
But, start it will. And it'll have all the wonderful
characteristics of a 1950s TV variety show. Sort of a
latter-day Ed Sullivan Show - entertainment, big-name acts,
appearances by stars from stage, screen, and Wall Street,
you name it.
There'll be dancing bears in the form of Wall Street
analysts, jumping through hoops in perfect obedience to
their handlers. Magicians making data disappear and re-
appear in reality-defying forms. Puppet acts, too, with
politicians doing routines dictated by whichever way the
dollars may go. Wild animal acts, with fierce state Attorney
Generals growling the merger blues, at least until they're
tossed a service bone to shut them up. Chorus lines of big-
name East Coast "advisors" singing whatever tune they're
paid to belt out, and bringing in the best back-up
orchestras of jive numbers money can buy.
Yup, Ed Sullivan would be proud. So, unfortunately, would
P.T. Barnum. That's because no how much glitz, glitter,
promises and paid PowerPoint presentations will be spit out
to hype this deal, it's still a bad one for the consumer. No
matter what good intentions US Airways may have, the fact
remains that the consumer won't benefit from this deal.
This Deal Is Not Comparable To the US/HP Combination
Much will be made about how the America West acquisition of
US Airways is the poster-child for this Delta deal. Nothing
could be farther from reality. There is a fundamental
difference between an asset-buy and this proposed merger of
Delta and US Airways.The hostile takeover offer from US
Airways is a full-blown, bona fide, overlay merger - one
that, as admitted by US Airways, will result in less, not
more.
On the other hand, the acquisition of the original US
Airways by America West Holdings was essentially an asset-
purchase, and one that represented very little overlap. For
that reason, we saw it not as a potential disaster, but as a
potential winner, and our analyses were relatively positive
about the potential for that combination. Click Here and
scroll to May 25, 2005.
First, in 2005, America West Holdings bought a dying carrier
that represented very little route or competitive overlap.
That's 100% different from this current deal, where there is
competitive overlap up the whazoo, particularly in smaller
communities that have near zip chances of getting new
competition should this merger go through.
Second, in the first US Airways deal, HP acquired a carrier
that for all indications was heading smooth out of business,
and in the process of doing so, HP preserved enormous
amounts of service, and retained enormous amounts of
competition on the East Coast. America West Holdings was
the cavalry that arrived to save the day, not to mention
thousands of jobs in the East. That, too is 100% the
opposite of what this hostile take-over of Delta represents.
Finally, it needs to be kept in mind that despite admirable
progress, the integration of HP and US is not yet complete.
Adding Delta into the mix - well, draw your own conclusions
regarding the immediate operational "efficiencies" this
might bring.
Amateur-Act Myths. The media should be aware that there are
a number of mantra-myths that are the bedrock on which
proponents are pushing this deal. They are repeated over and
over again, mostly by Wall Street types and academics, to
the point that they are rarely questioned, even though
they're nonsense.
Myth One: We Need Consolidation. Six months ago these folks
were still claiming that the industry had "over-capacity."
That being proven nonsense by high demand and 80% load
factors, the tune has changed.
Supposedly, these folks now claim, there are too many seats
out there to support a "healthy" airline industry, even if,
at 80%+ load factors, everything is essentially full, and
airlines are now pushing into the black.
More hypothetical nonsense. Not only is the system full, but
for the first time in memory, comprehensive network airlines
are well positioned for an economic downturn, with parts of
their fleets or parts of their capacity mix that can be
easily pulled-down. And this time, there's limited amounts
of net-new CNC capacity on order.
What these people are really saying is that the merger will
reduce competition, and - in paper theory only - supposedly
reduce the numbers of seats in the market. That, they opine,
will strengthen the industry by limiting production. That
means they'll carry fewer passengers, but being able to
charge them more. This at a time that major carriers are
moving into the black. Not only does history refute this
theory, particularly in high-density markets, but Congress
and the DOJ will need huge on-going doses of this mind-
numbing nonsense if they are going to eventually believe it.
Myth Two: Mergers Will Make Airlines Stronger, Causing More
Mergers. Don't buy into the hype that there are huge
immediate operational synergies in this deal that will
render the New Delta a competitive wonder.
The fleets are the economic equivalent of the Hatfields &
McCoys. 777s and A-330s. 737s and A-320s. And a hodge-podge
of other aircraft. To the creatures that inhabit some parts
of the financial world, this means nothing. But when real-
world realities of maintenance programs, training
curriculums, parts inventories, not to mention union bid-
and-bump issues, are considered, what this entity will
represent on the day the merger is consummated will be one
big wallowing marketing target for its competitors.
It is a fact, however, that the sheer millions that
financial institutions can make in merger deals will likely
increase the possibility of some new offers made to combine
other carriers. But it won't be as a result of the
competitive threat that a combined US-DL entity would
represent. That's because the revenue and operational
synergies are years away.
The main "gain" would be in cutting the competitive flying
that today exists between DL and US. For example, the seven
ORF-ATL Delta flights and the seven ORF-CLT US Airways
flights might be cut down to some combination of eight or
nine total flights. If they can retain the same ridership,
they get "synergies" in costs, maybe. But not in increased
revenues, except to the extent that the reduced capacity
allows fare increases between some city pairs.
Myth Three: This Merger Won't Reduce Competition. The last
point above brings up the issue of competition - this merger
will decimate it.
Communities, politicians, and state AGs should be prepared
this coming week for a Minnesota-denuding blizzard of paper
"studies" and analyses, all purporting to represent that
combining Delta and US Airways won't result in higher
concentrations or in less competition.
There will be references to esoteric "indices" like "HHI"
and references to domestic market share, and the claim that
LCCs will be there to keep competition at a razor edge.
Ray Charles could see through this one.
We'll start with this: when you remove one consumer option,
competition is reduced. Trying to claim that the consumer
can go to another vendor somewhere else (like that LCC-
served airport an hour away) doesn't change the fact that
one less airline choice is in the marketplace, and one less
choice means a reduction in competition.
Small Airports: Reconsider That Growth Plan. Using macro
ASM/RPM comparisons, and generalized market-share analyses
is a great way to bamboozle local politicians and some of
the media. But when the dust settles, it won't do diddly to
change the fact that small and medium size communities are
going to take this merger on the economic chin.
A couple of examples...
Here's just a snapshot of what smaller communities can
expect from the grand "benefits" of this merger. The
percentages next to the cities in black represent the
combined capacity share that this new entity would have in
the market.
Sure, it could be countered that the New Delta will reduce
capacity, thereby reducing concentration at a given airport.
But that just means fewer seats in the market, and there's
no guarantee that other airlines would increase capacity. In
fact, that's a pipe dream - the other carriers are in most
cases feeding their hub banks, and increasing either unit
capacity or frequency might not be possible or even in their
own best interests.
Note that these are just a few examples, and when actual
market shares (as opposed to capacity-shares) are
considered, the picture can be a lot worse. Charleston, SC,
would see over 70% of its passenger traffic controlled by
one airline. Montgomery, 75%.
It gets worse. The cities in red are those that will find
themselves with NO competition at all - just the New Delta.
Put another way, competition won't be reduced in these
markets - it will be eliminated. And, please, don't let your
intelligence be insulted when some paid wind-up toy
"analyst" or zipper-brained financial type tries to tell you
that an LCC will jump into these markets. Southwest and
jetBlue don't have a hankerin' to rush into Lynchburg.
Let's stop the jive - silly macro numbers aside, it's
smaller communities that will see less competition, less
capacity, and in most cases, virtually no chance of other
carriers jumping in. That is a reduction in competition, and
no amount of shameful number-engineering will change that.
Or, replace what's lost.
Cont.....
