One of the better merger articles I've read.

Cav

Former Maddog Whisperer
From the WSJ...

Mergers Benefit
Airlines; Shame
About the Fliers
January 15, 2008; Page D1
Some corporate mergers have little effect on customers. But when big airlines merge, it changes life for travelers, leading to higher ticket prices, poorer service and maybe even a switch in the credit card you carry.

Airline mergers can mean headaches for travelers.
For the fractured airline industry, where nine big airlines fight coast-to-coast, removing large competitors and bulking up flight schedules could be a way to better survive high oil prices and recession instead of the bankruptcies and turmoil of past downturns. That's why Delta Air Lines Inc. may be considering formal merger talks with either UAL Corp.'s United Airlines or Northwest Airlines Corp., and why analysts think multiple major marriages could lie ahead.

"By default or design, I think it's going to happen. If it doesn't, they'll be back in the tank again," said Gordon Bethune, the former head of Continental Airlines who has been advising some big airline investors on merger prospects.

But for travelers, big-airline couplings historically have meant headaches. Airline employees endure change and disappointment -- which could make them act grumpier toward customers. Some communities could see reduced service if mergers allow the combined airlines to close hub operations -- would a merged Delta and Northwest still need hubs in Cincinnati and Memphis, for example? Higher ticket prices are likely; airlines merge in part so that they will have more pricing power.

TRAVEL INDEX

The index increased 5% after United initiated a $50 round-trip fuel surcharge.But the biggest peril for consumers is poorer service -- late flights, lost baggage, confusion at airports, ticketing troubles and changes in frequent-flier program rules.

Just consider what happened after US Airways Group Inc. merged with America West Airlines. The two carriers now have a stronger network and have seen a boost in revenue they can generate through higher fares and a better mix of business travelers. But consumers have paid a huge price beyond more-expensive tickets.

When the two carriers finally moved to a single reservation system, customers discovered some itineraries had been lost and computer troubles led to long lines at airports, widespread flight delays and disruption. America West managers, who took over larger US Airways, have struggled to fix an inadequate baggage-handling operation in Philadelphia that produced piles of lost suitcases during busy times. US Airways on-time performance plunged; customer complaints soared, according to the Department of Transportation. And the carrier still has to deal with its fractured pilots union, where original US Airways pilots are unhappy about how their seniority was affected by integration with the former America West pilots.

"Airline mergers help stockholders and the company, but not consumers," said Paul Hudson, executive director of the Aviation Consumer Action Project, a nonprofit group.

Travelers could see big changes in frequent-flier programs. Delta, for example, has its mileage program tied to American Express Co., while United miles are earned using J.P. Morgan Chase & Co. cards, and Northwest is aligned with U.S. Bancorp. Typically in airline mergers, customers of the acquired carrier have to switch credit cards to the surviving airline's program.

Credit-card companies could play a bigger role than usual in merger negotiations since several propped up airlines in their bankruptcy reorganizations a few years ago by pre-buying frequent-flier miles to give to customers. American Express, for example, pumped $500 million into Delta. "Plastic plays a big part in changes," says Randy Petersen, president of Frequent Flyer Services, a Colorado Springs, Colo., frequent-flier publisher.

Combining frequent-flier programs could make it tougher for travelers to score free seats and upgrades. More elite-level frequent fliers, for example, may be trying to get upgrades on a specific flight. But it also opens up new destinations where travelers can get free tickets, and lets elite-level fliers use their benefits like early boarding and better seating on more flights.


"Supply and demand evens out a little bit when programs get bigger," Mr. Petersen said.

Mergers also can mean bigger airplanes on some routes if a combined carrier with a larger customer base can substitute a full-size, mainline jet for a 50-seat regional jet. Some transcontinental and international flights could see larger aircraft -- wide-body jets instead of single-aisle planes -- as well.

Mr. Bethune said an analysis of a Delta-United combination forecast a 10% reduction in regional-jet service for customers of those two airlines, and about 15 jets worth of additional mainline flying.

Such a consolidation of airplanes could help ease some congestion in the skies. But at the same time, mergers could lead to more congestion at specific hub airports that get bigger with consolidated traffic. And historically, mergers open up opportunity for new entrants and discount airlines that fill in gaps left by service cuts and find new opportunity when bigger incumbents raise prices.

One of the biggest beneficiaries of past airline mergers: Southwest Airlines Co., which has expanded in cities affected by mergers and has capitalized on bigger-airline service woes and higher ticket prices. US Airways acquired PSA and AMR Corp.'s American Airlines acquired AirCal to give them intra-California flights, but Southwest dominates those markets today. The latest examples of that opportunistic strategy are Philadelphia and Pittsburgh, where Southwest has expanded as US Airways has contracted.
 
I dunno. I see higher ticket prices as a GOOD thing. Then again, I'm not Joe American looking for a fare from MDW-MCO for $79. I think part of a lot of the things we see is people are angry at airlines, and the media feeds on this. Why are high prices necessarily bad for travellers, but they can just deal with rising gas prices? People don't necessarily HAVE to fly, but filling up your tank to get to work is pretty much a "gotta have." Gas stations and oil companies raise prices to deal with the rising cost of oil. Yet, when airlines raise fares in order to compensate for essentially the same thing, it's a huge deal and "bad."

I'll agree that merging two frequent flier programs generally sucks. US Airways has proved that most recently. The public rarely even cares about the merging of labor groups since it doesn't affect them that much. Airline employees are already grumpy thanks to slashed wages, cut hours and reduced benefits. A merger might actually offer HOPE to some of the NWA people. And we should all pay attention to this little gem:

Mr. Bethune said an analysis of a Delta-United combination forecast a 10% reduction in regional-jet service for customers of those two airlines, and about 15 jets worth of additional mainline flying.

Bethune has proven he knows his stuff by turning CAL around, so I generally listen to the man. Reduction in regional jets might suck for those of us looking for a quick upgrade or to get hired with 600 hours, but in the long run those jets at mainline help us ALL out. Why? More jobs at the promised land rather than the wilderness. Let the "Well, you got yours and now you wanna pull up the ladder" flames commence.....
 
Hey, lawn services get away with charging "fuel surcharges." But, Joe SixPack won't pay for the fuel to drive the jet. Go figure.
 
I think much of it depends on the type of traveler you look at. If it is a "frequent flyer", than, yes, they will probably notice the difference, and have more of a complaint. The frequent flyer, however, is most likely flying for business, and thus does rely on air travel. They will not like it, but they will still continue to fly, as the kinks work themselves out.

On the other hand, you have the leisurely travelers, who fly maybe once, or twice per year. A $50 increase in fares, will not affect them much, at all. They will still rather pay that, than pay that same $50 extra to fill up their car, and drive across the country. I think leisurely travelers look at their time value, vs. money, and for many, taking that quick flight, as opposed to driving the entire day, is much more worth it, to get their vacation started early, even if it costs a little more.

In the end, I think the demand for air travel, and the forecasted increase in demand, year, after year, will be a positive as far an airline’s financials are concerned. I just hope that it works out in a positive way for employees, as well.
 
Oh boy, as the world turns and everyone thinks their entitled to something. Pilots want customers to pay more so they can get more dinero, customers want to pay less so they can have more dinero, management wants to keep pilot costs as low as possible so they can have a better bottom line and get...you guessed it...more dinero. May the strongest survive. We live in a world of C.R.E.A.M. Cash Rules Everything Around Me (Singin dolla dolla bill ya....:D) Getcha money while you can!
 
I dunno. I see higher ticket prices as a GOOD thing. Then again, I'm not Joe American looking for a fare from MDW-MCO for $79. I think part of a lot of the things we see is people are angry at airlines, and the media feeds on this. Why are high prices necessarily bad for travellers, but they can just deal with rising gas prices? People don't necessarily HAVE to fly, but filling up your tank to get to work is pretty much a "gotta have." Gas stations and oil companies raise prices to deal with the rising cost of oil. Yet, when airlines raise fares in order to compensate for essentially the same thing, it's a huge deal and "bad."

I'll agree that merging two frequent flier programs generally sucks. US Airways has proved that most recently. The public rarely even cares about the merging of labor groups since it doesn't affect them that much. Airline employees are already grumpy thanks to slashed wages, cut hours and reduced benefits. A merger might actually offer HOPE to some of the NWA people. And we should all pay attention to this little gem:



Bethune has proven he knows his stuff by turning CAL around, so I generally listen to the man. Reduction in regional jets might suck for those of us looking for a quick upgrade or to get hired with 600 hours, but in the long run those jets at mainline help us ALL out. Why? More jobs at the promised land rather than the wilderness. Let the "Well, you got yours and now you wanna pull up the ladder" flames commence.....

Agree 100%
 
Gas stations and oil companies raise prices to deal with the rising cost of oil. Yet, when airlines raise fares in order to compensate for essentially the same thing, it's a huge deal and "bad."

This comparison is often used but has a fatal flaw.

When gasoline is put in the ground it stays there until it is sold. At the other end of the spectrum are airline seats which have an expiration date. You either sell them by that date or get absolutely zero revenue while still paying the cost of the seat.

If gasoline had a short life span and a station knew it had to empty it's tank by Tuesday or lose any chance of revenue from that inventory, you'd occasionally see gas for sale for 50 cents a gallon.

As it is gas stations set prices just above or in some cases just at the cost of the gasoline. This is because their profits lie in beef jerky and slushies.
 
On the other hand, you have the leisurely travelers, who fly maybe once, or twice per year. A $50 increase in fares, will not affect them much, at all. They will still rather pay that, than pay that same $50 extra to fill up their car, and drive across the country. I think leisurely travelers look at their time value, vs. money, and for many, taking that quick flight, as opposed to driving the entire day, is much more worth it, to get their vacation started early, even if it costs a little more.

This is almost exactly opposed to the reality of the situation. Leisure travel is much more price sensitive that business travel and most airfare sales target leisure travelers. But it's a good effort at thinking it through.:)
 
As it is gas stations set prices just above or in some cases just at the cost of the gasoline. This is because their profits lie in beef jerky and slushies.


Honestly, I don't know how gas stations set their prices. Oil goes through the roof, gas prices go through the roof the next day. Nevermind the fact that the gas in the ground was put their off of oil that was bought weeks or months ago. Yet, when oil prices fall, gas prices lag behind. Hmmmm. This is purely based off my observation here in the local market. Other cities may vary.

All I know is gas was $2.89 a gallon. Oil hit $100 a barrel, and that afternoon it jump a minimum of $.10 a gallon. Oil has since come back down by $8 a barrel (or thereabouts), yet prices here are still in the $2.99 range in a lot of places.
 
Honestly, I don't know how gas stations set their prices. Oil goes through the roof, gas prices go through the roof the next day. Nevermind the fact that the gas in the ground was put their off of oil that was bought weeks or months ago. Yet, when oil prices fall, gas prices lag behind. Hmmmm. This is purely based off my observation here in the local market. Other cities may vary.

All I know is gas was $2.89 a gallon. Oil hit $100 a barrel, and that afternoon it jump a minimum of $.10 a gallon. Oil has since come back down by $8 a barrel (or thereabouts), yet prices here are still in the $2.99 range in a lot of places.

How gas stations set their prices is easy. They set the price based on what their supplier tells them it will cost to fill up the next time the truck comes. And the price they set has very little or no profit margin in it. That's because if they try to make much money on gasoline their competitor across the street will undercut them to drive traffic into his store where they buy the jerky and slushies that make the money.

Now supplier prices are a whole different thing.

As for airplanes an airline could declare they were going to sell all their seats at cost plus 5%. Five percent would be an unheard of profit in our industry, but why not shoot for the stars? Then they could watch the airplanes push-back empty until the money ran out. But at least, by god, they priced them above cost.
 
How gas stations set their prices is easy. They set the price based on what their supplier tells them it will cost to fill up the next time the truck comes. And the price they set has very little or no profit margin in it. That's because if they try to make much money on gasoline their competitor across the street will undercut them to drive traffic into his store where they buy the jerky and slushies that make the money.

Now supplier prices are a whole different thing.

So it's the suppliers that are jacking and sticking the prices when oil comes down? Same issue, just a different target.
 
So, let me get this straight.

Passengers lose out when there's a merger. The employees lose out when there's a merger.

So says the Wall Street Journal.

What the Journal ISN'T telling you is who makes out.

That would be the Wall Street firms who get to make boatloads of money when they put together the merger in order to leverage the inherent synergies.

And then the same Wall Street firms who break up the merged company.

So what's the point?
 
So, let me get this straight.

Passengers lose out when there's a merger. The employees lose out when there's a merger.

So what's the point?

The whole history of the airline industry can be summed up in one word, consolidation. It has been on this track since the first mail runs.

Mergers have been mostly good for passengers and employees in as much as they helped companies survive in a relentlessly competitive environment that produced little or no profits. Mergers and acquisitions often saved the jobs of employees at failing companies and as often as not lead to higher wages for them.

And every time there's a merger the obligatory articles get written about harm to the consumer. Yet all these airlines that are products of merger after merger are alive and providing the lowest fares in the history of the industry.

And yes not all mergers/acquisitions have gone perfectly. It's a dog-eat-dog industry. But it is going to consolidate further and has to if it is ever going to get healthy. And a healthy airline industry would be good for both passengers and employees.

So I guess I would say, that's the point.
 
So it's the suppliers that are jacking and sticking the prices when oil comes down? Same issue, just a different target.

I don't know about jacking and sticking. It's a supply and demand issue that is driven by refinery capacity as much as anything.

If you really want to see oil and gas get scarce and expensive just try to remove the profit incentive.
 
Deregulation and RJ's are the common death nail here. 35 years ago who would have thought Braniff, Eastern, & Pan Am would disapear and Southwest would be a coveted job? Who would have thought there would be this many RJ's? The ATC system and everything else in the aviation business require tax dollars and need some form of regulation. They don't need it because it couldn't be profitable, but the way the CEO's and Shareholders want to run these things have sham bankruptcies, slash salaries, farm out flying so they can get richer faster. Because of scum bag management that's why we need some form of regulation to help prevent that. Thats my $.02 look to the past to make the present more stable.
 
I don't know about jacking and sticking. It's a supply and demand issue that is driven by refinery capacity as much as anything.

If you really want to see oil and gas get scarce and expensive just try to remove the profit incentive.

This is why I say they're jacking up the price. Let's take the "replacement cost" issue you mentioned for the suppliers. So, the stations raise the price of gas in order to cover the cost to put gas back in their tanks. I can go with that. However, when the price of oil goes back down, the price to replace the gas SHOULD go down as well.....but it doesn't. At least, not as quickly as the retail price goes up. Oil goes to $98 a barrel, you see an increase within a day at the pump. Oil drops down to $92 a barrel, you'll see a decrease MAYBE within a week.

I also read an article that supply and demand aren't the only drivers for the price of oil. Speculation often gets left out. People are buying into oil hoping the price goes even higher as China's demand increases, and that could be adding to the price.
 
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