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Posts Tagged ‘Merger’

United Airlines and Continental Airlines today announced that United Airlines has agreed to buy Continental in a $3 billion-plus deal that would create the world’s largest carrier with a commanding position in several top U.S. cities. Interestingly, the headquarter will move to Chicago IL but it would be run by Continental CEO Jeffery Smisek.

So, how would the merged company look like –

In response to US Airways plan to merge with United Airlines, Continental CEO Smisek remarked –

“I recognized that United is the best possible partner for Continental,” Smisek said on a conference call. “I didn’t want him (United’s Tilton) to marry the ugly girl; I wanted him to marry the pretty one, and I’m much prettier.”

The merger will make it the number 1 carrier in US, with Delta the 2nd and American Airlines number 3. US Airways will the distant 4th (for US carriers with international carrier).

US Airways should be proud – their merger talks always result in someone else merging.

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Northwest + Delta = Delta

Northwest + Delta = Delta

Today (Wednesday October 29th 2008), the Justice Department approved the merger between Delta Air Lines and Northwest Airlines. The merger will be the largest airline in world bringing down American Airlines to the second position.

The combined airline will be called Delta with headquarters at Atlanta and Chief Executive as Richard Anderson.

From CNN Money

After a six-month investigation, government lawyers concluded the
merger would likely drive down costs for consumers without curbing
competition.
The proposed merger “is likely to produce substantial and credible
efficiencies that will benefit U.S. consumers and is not likely to
substantially lessen competition,” the Justice Department said in a
statement issued by its Antitrust Division.
The merger should create cost savings by combining airport operations,
information technology and other efficiencies, ultimately driving down
prices for fliers, the regulators said.

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+
Higher oil prices have driven airlines to different solutions like capacity reduction, merger related synergies, airfare increase, charging for the usual freebies, etc.

British Airways and Spain’s flag carrier Iberia (or Iberia, Líneas Aéreas de España, S.A. ) are deep in merger talks with Iberia “have taken direct/indirect 10% stake in British rival”. The merger is backed by boards on both airlines and will create the third largest airline in Europe (after KLM-Air France and Lufthansa).

So, as usual, I set out to find how the combined entity would look. Please be aware that I do not account for possible merger related capacity reduction (or airplane retirement) and unforeseeable changes.

British Airways in BLUE and Iberia in RED –

  • HeadquarteredWaterside, Harmondsworth, UK and Madrid, Spain
  • Destinations147 + 115 (+19 future) =252 (+19 future) – OVERLAP
  • Frequent Flier ProgramExecutive Club, Premier + Iberia Plus = ?
  • AllianceOneworld
  • HubsLondon Heathrow Airport, London Gatwick Airport, Barajas Int’l Airport
  • FleetAirbus A318, A319, A320, A321, A380-800*; Boeing 737, 757, 767, 747, 777, 787* + Airbus A319, A320, A321, A340; McDonnell Douglas MD-88
  • Fleet Size235 (+62 orders) + 152 (+19 orders) =387 (+81 orders)
  • Company SloganUpgrade to British Airways + With Iberia , you’re more = Upgrade with more???

Since, British Airways is a bigger airline, there might be a possible BA head over the combined airline. Willie Walsh as CEO???

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United Airlines and US Airways are reported to have again failed to reach an agreement. Both the companies have been rumored to be in talks about a possible merger which would help both the companies fight their survivals which has been endangered due to the increase in jet fuel price.

From CNBC article

United Airlines
Jacquelyn Martin / AP
United Airlines

There
has been little to no contact between United Airlines and US Airways in
recent days and the internal teams of senior executives at both
companies as well as external bankers and lawyers assigned to the
project have put it on “permanent hold,” one person involved in the
talks said. While it remained possible the talks could be revived,
people involved in the most recent discussions said they had never
advanced to final negotiations.

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With the oil prices breaking records everyday, there is more pressure on airlines to consider mergers, and other capacity cutting measures. Capacity cuts do mean lesser seats available and hence greater leverage in changing ticket costs.

According to MarketWatch

“the board for United Airlines parent UAL Corp. is expected to meet
Thursday to hear out management on the progress towards consolidation
with U.S. Airways and other strategic options, the Financial Times
reported.”

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Earlier I had blogged on how the merged airlines would look.

Seems like the merger is getting more heat. Currently, there are rumors about –

  • Headquarter in – Chicago IL (same current United Airlines’ Headquarter)
  • Management Team – US Airways (with CEO Doug Parker and President Scott Kirby)
  • Savings of – At least $1.5 billion
  • Cash Cushion (very important for accessing bankruptcy risk) – $5.3 billion
  • Size – Second largest Airline after Delta + Northwest.

US Airways (old – sans/pre America West) and United Airlines tried to merge earlier in 2000 (talks in 1994) which was turned down by regulation committees.

Read more in Chicago Tribune.

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When KLM-Air France can merge, then why not American Airlines and British Airways? They already have a great alliance and together can make the biggest airline in world in every respect. Though I think it is nothing more than wishful thinking, since neither a foreign carrier can have 20% or more stake in a US Airline and moreover antitrust/competitive/workforce merging issues will thwart any effort towards the direction.

So, let us say that with some strange turn of events, the two Airlines merge. So how would the merged airline look? (Red for American Airlines and Blue for British Airways)

  • NameAmerican-British Airlines or British-American Airways
  • Headquartered inFort Worth TX USA and Waterside, Harmondsworth, England, United Kingdom
  • HubsDallas-Fort Worth, Chicago (O’Hare), Miami, St. Louis, San Juan and London Heathrow, London Gatwick
  • Secondary Hubs/Focus CitiesNew York JFK, New York LaGuardia, Boston Logan, Los Angeles, Raleigh Durham
  • Fleet Size675 and 235(+62 orders) = 910 (+62 orders)
  • FleetAirbus A300; Boeing 737, 757, 767, 777; MD-82, 83 and Airbus A318, A319, A320, A321, A380 (orders); Boeing 737, 747, 757, 767, 777, 787 (orders)
  • Majority FleetAmerican has 336 MD80s and 47 Boeing 777 and British has 57 Boeing 747 and 42 Boeing 777
  • AllianceOneworld (same for both)
  • Member LoungeAdmirals Club and Galleries First,
    Galleries Club, Galleries Arrivals, Terraces Lounge, Arrivals lounge, First Lounge, Concorde Room (LHR and JFK Only)
  • Destinations158 and 147 (75 countries)
  • Frequent Flier ProgramAAdvantage and Executive Club, Premier (Invitation only)

What do you think? Isn’t it better then letting US airlines go into this endless cycle of losses and ultimately succumb to bankruptcy? Consider this, an outside airline can raise enough capital to change/substitute all gas guzzling aircrafts for American Airlines. On the other hand American Airlines can get British Airways the most coveted American Network to feed into their existing network and hence a better ticket pricing/loyalty program for consumers.

So, if this dream comes true, what will be next? Jetblue – Luftansa? Continental-KLM-Air France? I know, DREAM ON! 🙂

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