DL-NW Merger

[DFW HOYA]

What do you get when you merge two big struggling airlines?

A very big struggling airline.

www.ajc.com

[The Stig]

hoyatalk2.proboards48.com/index.cgi?board=offtopic&action=display&thread=15127

Expect United and Continental to merge soon.

[StPetersburgHoya (Inactive)]

Apr 14, 2008 21:05:08 GMT -5 The Stig said:

hoyatalk2.proboards48.com/index.cgi?board=offtopic&action=display&thread=15127

Expect United and Continental to merge soon.

Oh great, the two airlines that can't seem to get my bags to Dulles combining forces...

[EasyEd]

How do we ever expect the airlines to perform better (fewer delays, fewer misplaced/lost bags, customer satisfaction, etc.) if more people fly every year but we never (almost) build any new airports? Channeling ever more flights into existing airports and the same air space will only result in worse performance in the future and we will wonder why.

[AustinHoya03]

Apr 17, 2008 12:41:42 GMT -5 EasyEd said:

How do we ever expect the airlines to perform better (fewer delays, fewer misplaced/lost bags, customer satisfaction, etc.) if more people fly every year but we never (almost) build any new airports? Channeling ever more flights into existing airports and the same air space will only result in worse performance in the future and we will wonder why.

The newest airport I have been in over the past couple of years is Denver International, and it is a traveler's nightmare despite having a ton of space and gates.

Also, many existing airports have expanded and/or renovated in recent years -- does that not count as new construction?

[Coast2CoastHoya]

Apr 17, 2008 12:41:42 GMT -5 EasyEd said:

How do we ever expect the airlines to perform better (fewer delays, fewer misplaced/lost bags, customer satisfaction, etc.) if more people fly every year but we never (almost) build any new airports? Channeling ever more flights into existing airports and the same air space will only result in worse performance in the future and we will wonder why.

Totally agree. And furthermore, why are we not building airports in or near cities that could serve as alternate hubs to the major hubs like Chicago that are always congested? Or for that matter, why aren't we utilizing existing "mid-major" airports (like Chi-Midway, Long Beach CA, and Kansas City) more? Are those airports at capacity? Can they be expanded?

[The Stig]

Most city airports (like Long Beach and Chicago Midway) are at capacity. They also have very short runways, so only narrow bodied planes can use them. They can't be expanded since they're hemmed in on all sides by the city. Kansas City can be expanded, but it has the worst terminal design in the country.

The problem is that building a new airport is hideously expensive. Denver's airport cost $4.8 billion in early 1990's dollars, which was $2 billion over budget. New airports also are generally worse than their predecessors for people in the city because they have to build them so far away from the city to get away from NIMBY's.

The projects can also go horribly wrong. In Tokyo they built a new airport in the 1970's at Narita, but they didn't have the authority to kick people off the land they were building on. They couldn't get a few stubborn farmers to move, so they've only been able to build one full length runway of the three planned: www.airliners.net/open.file/1194776/L

In Montreal it went even worse. They built the new Mirabel airport in the 1970's, but it was too far from the city and passengers just stayed at the old Dorval airport. They eventually had to shut down Mirabel and move all the flights back to Dorval.

When they opened DFW they passed a law forcing almost all the airlines using the old Dallas Love airport to move to DFW, even though many Dallas citizens preferred Love since it was closer. The result was that people were forced to use the less desirable airport even though their preferred airport had plenty of spare capacity, even after Southwest showed up and started flying from Love. Recently Southwest and American (DFW's biggest carrier) got in a huge legal and PR fight over removing the restrictions on Love field, and the result was generally seen as an anti-competitive compromise that banned any airline not based in Texas from using Love field.

The key to airport capacity isn't the terminals, it's the number of runways that don't intersect. London has 5 major airports, with 10 terminals between them, but only 6 runways. The result is that all the airports are bursting at the seams. Chicago O'Hare has the right idea since they're realigning their runways to a parallel layout, which will increase their capacity in a big way.

The solution isn't the airports themselves, it's the airspace. The US air traffic control system is horribly outdated, which is not only inefficient but also unsafe. Over cities it's even worse. Most delays at Newark, LaGuardia, and JFK are ATC related. JFK and Newark both have plenty of runway and terminal capacity left over, but the airspace bottleneck prevents that capacity from being filled. If ATC is modernized capacity will go up and delays will drop in a big way without having to make any changes to airports.

[theexorcist]

What Stig said. The big one is airspace, which is obscenely crowded. I would disagree with him in that all will be resolved when (if) ATC is modernized. It remains that people want to fly, and that airplanes are going to remain busy. It's going to be even worse in Asia, which sorely needs capacity to serve a middle class that is increasingly mobile and which will want to return home for Diwali or Chinese New Year.

[Bando]

Stig, aren't there plans to move ATC to GPS sometime in the near future?

Also, we can probably relieve air congestion by investing in European & Japanese-style high speed intercity rail. Even if it's just the NE corridor. It's ridiculous that a flight from DC to NY is usually cheaper than the train, and that the so-called high speed train (the Acela) can only get me there a half hour faster than the normal train.

[The Stig]

exorcist - There's plenty of room in the sky. The problem is that the infrastructure on the ground just can't handle all the planes. Around big cities is the only place where there's too many planes in the sky, but that can be fixed if somebody redesigns the approach/departure routes. The problem is that those are subject to a lot of pressure from local residents.

Bando - I'm not sure what the future plans are, but I do know that the current system is underfunded and understaffed. They make small improvements to it all the time, but what it really needs is a big overhaul and proper funding.

[AustinHoya03]

The Economist suggests rising fuel costs would continue to be a problem for Delta/Northwest post-merger:

www.economist.com/business/displaystory.cfm?story_id=11058463

"s carriers elsewhere in the world ordered around 7,000 new, fuel-efficient aircraft in recent years, those fragile balance sheets meant that American airlines sat on their hands. Delta has 117 McDonnell Douglas MD-88s with an average age of 18 years; Northwest soldiers on with more than 90 DC-9s with an average age nudging 40 years. These planes are up to 40% thirstier than their more modern counterparts, a crippling burden given the price of fuel. They are also more difficult to maintain—as last week's grounding of American Airlines' similarly elderly MD-80s highlighted.

Delta and Northwest have little scope to cut front-line staff or replace their ageing fleets any time soon—production lines at Boeing and Airbus are fully booked until 2012."

[The Stig]

Yeah, the DC-9's will probably go out the door pretty quickly when Delta takes over.

One area where the DL-NW merger doesn't work too well is fleet commonality. One reason Southwest does so well is that they have only one type (the 737). Together, Delta and Northwest will have the 737, 747, 757, 767, 777, 787 (soon), A320 series, A330, DC-9, MD-80, and the MD-90. In other words, nearly every type that's been made in the past couple decades. They're going to have to rationalize that somehow.

[The Stig]

Proving the theory that any prediction I make is false, Continental's board just voted to not merge with another airline.

Word on the street is that US Airways and United will now try to merge. If that happens it will be ugly in a big way.

[AustinHoya03]

Apr 27, 2008 20:27:01 GMT -5 The Stig said:

Proving the theory that any prediction I make is false, Continental's board just voted to not merge with another airline.

Word on the street is that US Airways and United will now try to merge. If that happens it will be ugly in a big way.

Beat me to it, but I will add this:

"Meanwhile, Continental is expected to press ahead with preliminary talks to create a three-way alliance — short of a full merger — with American Airlines and British Airways."

www.nytimes.com/2008/04/28/business/28air.html?em&ex=1209441600&en=a3068e98b4e1e8a5&ei=5087%0A

Now, can someone explain to me what that sentence means?

[DFW HOYA]

Apr 27, 2008 20:42:25 GMT -5 AustinHoya03 said:

Now, can someone explain to me what that sentence means?

An alliance like this is a combination of a codeshare (AA selling through tickets across all three carriers), a frequent flyer mileage cooperation (e.g. flights on BA count also for OnePass) and some minimal joint marketing efforts (e.g. Star Alliance, One World).

Smart move by CO and AA to stay off the merger front. A United-US Air alliance could be a disaster.

Why? For one, the route systems are a bad mix. United has hubs in Chicago, Denver, Los Angeles, San Francisco, and Dulles. US Air has hubs in Charlotte, Philadelphia, and Phoenix. Does one airline need hubs in Philadelphia and DC? Or Phoenix and LA? What does US Air provide United that it doesn't already have? Express flights to LaGuardia?

[The Stig]

Apr 27, 2008 20:56:08 GMT -5 DFW HOYA said:

What does US Air provide United that it doesn't already have? Express flights to LaGuardia?

That's what everybody's trying to figure out. In terms of things United doesn't have, US Airways has a hub in the southeast (CLT), and.... that's about it. They're also still digesting their America West merger.

Continental was a much better fit because it had a big transatlantic network, a Pacific island network that fit in with United's transpacific network, a big Latin American presence, and a New York hub. United has none of those.

The problem for United was that Continental didn't really have to merge, so they could drive a hard deal and call the shots in the new airline. United felt like they had to merge, and US Airways is similarly desperate.

Continental is still in reasonably good shape, so they can survive alone, as can American.

[AustinHoya03]

Apr 27, 2008 20:56:08 GMT -5 DFW HOYA said:

An alliance like this is a combination of a codeshare (AA selling through tickets across all three carriers), a frequent flyer mileage cooperation (e.g. flights on BA count also for OnePass) and some minimal joint marketing efforts (e.g. Star Alliance, One World).

So basically the same arrangement BA and AA currently have would be extended to Continental, right? Sounds good to me.

[The Stig]

I think the bigger issue for the airlines is anti-trust immunity on transatlantic flights.

Northwest and KLM have had an exemption for ages, and it's grown a lot since KLM merged with Air France and with the Delta/Northwest hookup. What started out as a Northwest/KLM deal has now become a Northwest/KLM/Air France/Delta deal.

Continental wants to get a similar deal with AA and BA, so they can operate flights for each other, share revenue, etc. The problem is that those three airlines have a pretty big share of the New York-London market (I've heard it's about 70%), which is a tough market to enter since there are airport restrictions on both sides.

[hoyatables]

Apr 27, 2008 20:56:08 GMT -5 DFW HOYA said:

Apr 27, 2008 20:42:25 GMT -5 AustinHoya03 said:

Now, can someone explain to me what that sentence means?

An alliance like this is a combination of a codeshare (AA selling through tickets across all three carriers), a frequent flyer mileage cooperation (e.g. flights on BA count also for OnePass) and some minimal joint marketing efforts (e.g. Star Alliance, One World).

Smart move by CO and AA to stay off the merger front. A United-US Air alliance could be a disaster.

Why? For one, the route systems are a bad mix. United has hubs in Chicago, Denver, Los Angeles, San Francisco, and Dulles. US Air has hubs in Charlotte, Philadelphia, and Phoenix. Does one airline need hubs in Philadelphia and DC? Or Phoenix and LA? What does US Air provide United that it doesn't already have? Express flights to LaGuardia?

A United/US Air merger (which, lets face it, is really a takeover of US Air by United) offers a couple of things of value to United:

1) The Shuttle. Not as valuable as it once was, but still pretty valuable. Plus it is something that will directly compete with AA.

2) Expanded presence in DC and the East Coast. United gets to lock down its hold on DC with expansion to DCA (where it only operates flights to ORD right now) and BWI. It also gets a foot in the door for the Northeast (Philly) and the Southeast (Charlotte). Though I agree that having control of Dulles AND BWI would make Philly obsolete.

3) Ease of transition for its existing customers. We're all already used to the Star Alliance. This just goes the next step.

I don't think it is a great idea for a lot of reasons, and it doesn't give United what they really want most -- presence in New York -- but it definitely improves their east cost presence in a big way.

[The Stig]

1) I have a feeling that some of the benefits of the Shuttle would be tossed out by the antitrust folks. I'm pretty sure they'll have to give back at least a few slots at LGA and DCA. The regulators also might not like the idea of the biggest airline at DCA merging with the airline that has a stranglehold on Dulles.

2) I don't think this merger does anything to BWI, since neither United nor US Airways are big players there. Southwest and Airtran rule the roost at BWI. Philly also might get cut back in favor of Dulles, since Philly's airport is a delay-prone dump with no room for expansion.

3) United-Continental would have almost certainly been in the Star Alliance as well.