UAL Considers New Round of Talks with CAL

[johnsonrod]

United Airlines ponders resuming talks

By Justin Baer in New York
Friday Jan 18 2008 18:25

United Airlines is considering a new round of talks to merge with Continental Airlines (NYSE:CAL) if its negotiations with another rival, Delta Air Lines (NYSE:DAL) , end without an agreement, people familiar with the company's plans said.
Glenn Tilton, United chief executive, an outspoken proponent of industrywide consolidation, signalled on Friday that the Chicago-based airlines could still strike a deal even if Delta merges with Northwest Airlines (NASDAQ:NWAC) . Delta opened negotiations with both United and Northwest earlier this month, the people said. "Our position has always been that we control our decisions; no one makes them for us," Mr Tilton said on Friday in a message to employees. "The advantage of our situation is that we have choices that we continue to consider with our board."

United and Continental discussed a possible merger a year ago after US Airways made a hostile bid for Delta, which was then under bankruptcy protection, the people said. Those talks cooled after Delta rejected US Airways' advances, but the two sides remained in touch, they said. United and Continental declined to comment.

Record fuel prices, vocal shareholders and the slowing US economy have pressured airlines to pursue deals that help reduce costs, eliminate unprofitable routes and extend their global reach.
Delta may have an easier time winning the approvals of anti-trust regulators and labour leaders in a deal with Northwest, the smaller of the two potential partners.

Richard Anderson, Delta's chief executive, once ran Northwest. Nevertheless United and Continental will probably need to wait for their peers to reach a deal before they sign their own accord; Northwest has the right to block a Continental merger under most conditions. Continental in turn can buy out that so-called golden share for $100 once Northwest reaches an definitive agreement of its own.

 

[alaskaplt]

Makes you wonder what Usairways and American will do. Looks like Usairways will be the odd man out here. Not a chance in hell they could merge with American. That only leaves going after some other domestic carriers. Just hope they stay the hell away from Alaska. Not exactly in a position to take on SWA any time soon though. This certainly is going to be interesting.

 

[IronCityBlue]

All your prediction belong to me!

Makes you wonder what Usairways and American will do. Looks like Usairways will be the odd man out here. Not a chance in hell they could merge with American. That only leaves going after some other domestic carriers. Just hope they stay the hell away from Alaska. Not exactly in a position to take on SWA any time soon though. This certainly is going to be interesting.

While true, that popular sentiment is still based on the extremely flawed tribal wisdom that suggests that every carrier will be allowed to merge if one does. The so called "Dance Partner Fairness Doctrine" which I predict will NEVER come to pass. I can just see one or more legacy airlines screaming from the back seat "But mommy! How come you let them merge and not us!! Its's not fair! Waaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa!!!" :crying:

Its also predicated on the assumption that mergers equal profits. We all know they do for executives and lawyers, but they won't necessarilly for all airlines, even if they are all allowed, which they won't be.

And as far as capacity slashing, where are they going to cut capacity when every airline under the sun is 90% full every summer and holiday? Hub closure? Do we even need a MEM hub in this country? Do we really need DEN and SLC trying t force feed 2 connection hubs into 1 O&D? CVG closing? Doubtful, its the nation's unchallenged yield machine. JFK and IAD being the same market? :laugh: Pass the pipe, I want some of that logic weed!

 

[bizicmo]

I think cal and alaska before cal and united.

 

[johnsonrod]

While true, that popular sentiment is still based on the extremely flawed tribal wisdom that suggests that every carrier will be allowed to merge if one does. The so called "Dance Partner Fairness Doctrine" which I predict will NEVER come to pass. I can just see one or more legacy airlines screaming from the back seat "But mommy! How come you let them merge and not us!! Its's not fair! Waaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa!!!" :crying:

Its also predicated on the assumption that mergers equal profits. We all know they do for executives and lawyers, but they won't necessarilly for all airlines, even if they are all allowed, which they won't be.

And as far as capacity slashing, where are they going to cut capacity when every airline under the sun is 90% full every summer and holiday? Hub closure? Do we even need a MEM hub in this country? Do we really need DEN and SLC trying t force feed 2 connection hubs into 1 O&D? CVG closing? Doubtful, its the nation's unchallenged yield machine. JFK and IAD being the same market? :laugh: Pass the pipe, I want some of that logic weed!

Capacity does not necessarily need to be slashed too much if the route structures are truly complementary. If you have overlapping hubs and many overlapping routes (like DAL and UAL), then you need to slash capacity (or transfer/sell gates, routes, slots) to appease the FEDs. The government is concerned about the impact on the passengers - adequate competition must be maintained.

When considering hubs for potential closure, you need to look at the capacity of that hub city. Is that hub being fully utilized or close to it? If there is no room for additional growth at that hub, then why close it down? Can you better utilize (from an efficiency standpoint) one hub vs. another in terms of feed? These are the sorts of questions that I assume the DAL and NWA execs will be considering IF the FEDs allow them to merge. The fact that their route systems are largely complementary with little overlap in routes makes major capacity downsizing unlikely.

Remember that if a newly combined DAL/NWA were to reduce flights from ATL-DTW, Air Tran would only increase its flights on that route to fill in the void. The demand is there. The question would be what types of aircraft would be sufficient to meet that demand? Delta wants Asian routes - international revenue serves as a hedge for declining margins in the US. That's the point. I see little reason to downsize MSP or DTW because they are serving a need in the Upper Midwest and they don't compete directly with current Delta flights.

Of course, this entire situation could come to a crashing halt if the FEDs say no. Should be interesting.