A federal appeals court overturned a federal district court ruling granting an injunction to the America West pilots who were dis-enfranchised when former US Airways pilots balked at an abritration ruling during the America West / US Airways merger that integrated seniority in a manner that more “blended” the seniority lists. 

US Airways pilots wanted a “date of hire” integration whereas the America West pilots favored a “blending” of the two lists.  Since seniority is everything at an airline, the US Airways pilots felt they had a lot to lose.

This has been going on now for 4 years and, frankly, I believe the US Airways pilots have not only done the America West pilots a disservice, they’ve hurt themselves as well. 

The original arbitration was done “in house” by ALPA between the two unions for each airline.  It was to be binding and while it didn’t settle everything to everyone’s satisfaction, it was as about as fair as one could get in such a situation. 

America West pilots shouldn’t be materially harmed by a merger when it was, after all, their company taking over US Airways.  Likewise, US Airways pilots shouldn’t be “stapled” to the bottom of the list at America West.  The original ruling did neither.  America West pilots weren’t significantly harmed by the initial ruling and, hey, US Airways pilots got to keep their jobs.

It is arguable that without the merger, US Airways would have likely gone into their third bankruptcy and they would not have survived.  Further, America West management corps has done quite a credible job of managing an airline that, among legacy airlines, is probably at a material disadvantage. 

US Airways pilots didn’t like the initial ruling and decided to form a new union for all pilots.  Since they had a  slightly larger number of pilots between the two groups, they got a new union (US Allied Pilots Association) certified and America West pilots rightfully didn’t like that and sued.  Using larger numbers like that was dirty pool.

This new ruling basically says that USAPA hasn’t materially harmed the America West pilots yet and, therefore, should be allowed to negotiate on behalf of all pilots until there is harm.  In essence, they (the court) said “Hey, this is a bit premature.”

I couldn’t disagree more.  Intent on the part of USAPA has been clear from the beginning.  They want a date of hire seniority list and now they have the ability to go negotiate such a deal.  Those negotiations with US Airways are liable to take 2 to 4 years before an agreement is in place.  In other words, it could be 2 to 4 years before these America West pilots can “prove” harm.

The rationale being used is, in my mind, flawed with respect to timeline, etc.  There was already a union (the same union for both airlines) certified at the time.  There was binding arbitration.  If arbitration isn’t binding, then what is it?  Allowing the original agreement to be nullified by establishing a new union with a slight majority of votes is just plain wrong.  

Who wins?  US Airways, of course.  They get to continue to pay pilots according to agreements that have been amendable for a long time at lower pay rates than much of the industry and a dollar saved today is worth 2 dollars tomorrow. 

Who loses?  Both parties to this disagreement.  They are looking at another 2 to 4 years before an agreement is in place and if that new agreement is based on date of hire, there will be another court battle that is likely to overturn that agreement.  Then you can tack on another 3 to 4 years to resolve that dispute. 

When everything is done, these pilots are looking at as much as 12+ years to settle this.

The fair settlement is a blending and everyone gets together and negotiates a new contract and gets that done in 2 or 3 years.  Then everyone earns more. 

A 12 year timeline potentially devestates senior pilots at both airlines who will retire before that conclusion. 

The best conclusion would be for pilots on both sides to get together, toss out the existing leadership in favor of a blending and then get to work on getting that new agreement asap.  Sadly, I don’t think that will happen.  The intransigence on the part of US Airways pilots is just to fixed for them to be moved into a real compromise.

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4 days of vacation and not reviewing anything to do with the airlines (or defense industry or the oil leak in the gulf) and it was quite relaxing.

Right.  Well, I see British Airways and Unite still haven’t got their act together.  These two desperately need binding arbitration.  British Airways needs it in order to bring back a degree of certainty to their operations.  Unite needs it to, well, preserve some semblance of the idea that they “won” something.  British Airways is winning this conflict now.  They’re winning it in public opinion and they’re winning it when it comes to employee viewpoints.  For Unite to continue without a deal only weakens them week by week.

I see that all kinds of politicians are questioning details of the Continental / United merger.  Oddly enough, many of them are from Texas and those folks are questioning the wisdom of Houston losing the Continental HQ.   Well, so do I but for vastly different reasons.  Houston is not going to be dimished as a hub nor is it going to lose many jobs.  In fact, I suspect they won’t lose any jobs in terms of “count” but I do think there will be transitions and changes.  This is a prestige objection on the part of Senator Kay Bailey Hutchison.  She lost the race for the Republican nomination for Governor in Texas and she desperately needs to appear to be looking out after “the people” in Texas if she expects to keep her seat in the Senate. 

I simply think it is stupid to move HQ to Chicago because it is fantastically more expensive there.  That’s all.

I saw a few stories about Australian airline JetStar adopting the iPad for inflight entertainment.  And, unlike most bloggers on the airline industry, I don’t care really.  I don’t see it as an industry trend, I don’t see it as unwise and I don’t think it’ll be but a blip on the airline horizon.  iPads are cool and probably cheap to deploy.  Oh, and you can deploy them quickly too.  Will it be a trend? I doubt it but I don’t care.  I really don’t. 

Boeing refuses to say whether or not they’ll bring a 787 to the annual flightshow in England this year in Farnborough.  They say they’ll make that decision closer to the show.  I say they would be insane not to give their customers a taste.  If they’re refusing to say, it may only be because they don’t know if their GE equipped test planes will fly their first flights on time.   Still, if I were to be money on an outcome, I’d be betting that ZA001, the first to fly, will be there all shiny and spiffy.  Maybe they’ll bring ZA003 which has seats.  One way or another, I’m betting there is a 787 at Farnborough. 

I refuse to talk about the person(s) who were left on United aircraft over the past few weeks. 

It’s been over a month since the new “tarmac rules” have been in place.  Am I the only one to notice only the soft sounds of crickets so far?  We’re 1 month into the thunderstorm season and nary a peep from anyone except Kate Hanni of FlyerRights.Org who wants rules in place to keep airlines from being punitive against people who want off an aircraft.  Actually, I somewhat support the notion but I think Kate Hanni is the wrong supporter for such a measure.  She’s got too much mud on her.

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The National Mediation Board (responsible for governing union relationships with respect to airlines and railways) has issued a new ruling that could affect airlines and their union relationships dramatically.  In the past, a campaign for unionization had to claim a majority of votes from the entire pool of laborers.  By simply not voting, it was presumed that your vote was against unionization.  Now the majority need only be of those who actually voted.

Will it affect airlines?  In the short run, yes, I think so.  I thinkt here will be a strong push to organize unrepresented labor groups at a number of airlines including Delta, jetBlue and Airtran among others.  However, I also think that this will mean that union members will simply vote instead of choosing to abstain in the long run.  I do think we’ll see some new unions at airlines. 

Is it fair to airlines?  Not in my opinion.  These rules have become too onerous and one-sided in the airline business.   I also think this will harm labor groups at the airlines.  I believe that this development will also lead to the NMB requiring longer and longer labor negotiations before permitting a strike.  Some groups are in negotiations for as much as 4 years now and the problem with that is circumstances in the airline business can dramatically change in just months.  Imagine how different the landscape becomes over 4 years?

New rules are probably in order but the structuring of those rules should give each side opportunities and risks for coming to agreement.  I suspect that one thing that led to this rule change is the rash of mergers we’ve had over the past 10 years.  Legislators see airlines growing bigger and bigger which gives the impression that they also have more and more market power among labor.   That couldn’t be farther from the truth. 

If anything, this industry needs more deregulation with respect to labor rather than more.  Airlines should be less constrained by seniority and have access to at least a semi-free market for meeting their labor needs.   Likewise, labor groups should have access to timely negotiations and contract renewals. 

All in all, I see more barriers  (as a result of this rule)  to acting in an agile manner to quickly changing markets and that will be bad for both sides.

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I still don’t like this merger too much.  I like that the identify remains mostly Continental and I like the fact that the Continental management appears to be the group that will run the airline.  However, I see quite a few risks here.

1)  While I have more confidence in the Continental management team than United’s, I’ll point out that Jeff Smisek is still a somewhat untested airline CEO.  He’s had about 4 months in the job at Continental and he’s been pretty aggressive in just those 4 months.  So far, I think I would be a bit more comfortable with Larry Kellner in control.   He wasn’t quite so “in your face” but still managed to be very tough when it came to making decisions.

2)  Glenn Tilton appears to be given a nice cushy position as non-executive Chairman of the new company but I’m not so sure he won’t try to influence the direction of the company.  He was brought in to execute a bankruptcy and always appeared to want to sell the company and move on but his actions said a bit more.  Is he ready to take a back seat?  I’m not so sure he is.   This isn’t a man who is used to taking a back seat to anyone.

3)  Employees and labor.  United employees might have something to look forward to in a management team that acts like it wants to run an airline.  However, Continental employees appear to be having some trouble figuring out why this is good for them.  They had it good and now they can look forward to some rather bad karma and aggressive behaviour from their brothers and sisters at United. 

I also have trouble seeing United’s labor unions cooperating.  They’re pretty militant and often remind me of American Airlines’ labor group.  While Continental’s labor groups generally accept that it is a new world out there, United’s seem to want to return to the glory days of the mid 1990’s.   And who decides seniority integrations?  Better yet, is the bad example set by US Airways EAST/WEST groups going to set a precedent for becoming recalcitrant if they don’t like the decision?  Part of me believes that United’s labor groups will most likely attempt to shove their desires down Continental’s groups’ throats.

4)  Fleets in these airlines show some opportunities but they also show some risks.  In the Boeing area, there is some room to “harmonize” the fleets.  Both operate 767’s, for instance, but different variants.  That’s a good thing if the pilot and flight crews are able to agree on seniority lists and get on with things.  It’s a bad thing if you have to use one part of the company to operate one variant and another to operate another variant.  The same is true on the 777 and 757 fleets. 

Both have orders for 787 aircraft and I suspect those will remain on the books .  United ordered A350’s and I kind of think those orders might just go away.  It’s the domestic fleet I wonder about.  UAL uses primarily A320 series aircraft and CAL uses primarily 737 series aircraft.   Again, if the pilots and flight crew can get together on labor agreements and seniority, it would be good to settle on one type.  The two aircraft are so similar that it is silly to operate two different fleets serving the same purpose.  (This really isn’t the case in the Delta/Northwest situation where the fleets were dissimilar enough to offer some opportunity for “right sizing”.) 

5)  Regional airlines.  United has relied more and more on regional airlines to serve mainline routes.  Continental has used them much more in the model of a traditional feeder network and primarily because of scope clauses with their pilots.   There are more than 10 different regional airlines serving the two airlines.  They need to consolidate and, frankly, they should consider buying 2 or 3 of those regional airlines and harmonizing their services a bit more.  Right now, I see a mad scramble to keep a lot of different kinds of regional aircraft in service with the two and I think those regional airlines are going to do anything they can to keep their contracts.  Service will suffer with so much competition.

6)  Service products.  Continental has a nice, focused service product for two classes (economy and business) that has worked fantastically for them.  United has 3 or 4 depending on how you count them.   First, business, economy plus and economy.  How do you harmonize these service offerings and keep both frequent flier groups happy.  A lot of Continental OnePass members already feel a bit cheated with the entry into Star Alliance and what it entitled them to on United and US Airways.  Those travelers count and you have to find a way to keep them happy.  Whose program survives and, at the same time, how do you keep from diluting the program(s) by being all things to all people?

Call me crazy but if I had been Continental, I would have encouraged a US Airways / United merger just to watch that organization melt down while I made plans to capture their business the old fashioned way:  By competing with good service.

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I just saw THIS Seattle Post-Intelligencer Blog entry with the photo of the proposed livery for UAL/CAL.  I have to say that it is a pretty handsome look.  Everything is Continental (including the typeface I believe) except the name.

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Now, this morning, I’ve seen several reports that the new combined airline will use the Continental livery and logo but the United name.  If nothing else, at least I can look forward to not seeing that horrid United livery anymore.

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There are now reports that the boards of both United Airlines and Continental Airlines have approved an agreement that sees UAL buying CAL for approximately its current market price of $3.2 billion.   It is an all stock deal where Continental shareholders will receive 1.05 shares of United for their Continental stock.

The Washington Post reports that the new company will have a 16 member board with 2 seats reserved for labor unions.   The combined companies will have employees number over 90,000 and a combined fleet of more than 690 aircraft.

Official announcement of the deal is said to come on Monday morning.

It’s basically the deal we’ve all been hearing about for 2 weeks now.  UAL buys CAL, the company uses the United name and the Continental executive team runs most of the show.  Read the CNN/Money Magazine article HERE.

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This news story HERE from Reuters indicates that United Airlines and Continental Airlines have agreed on stock pricing and the share price would seem to indicate that Continental got what it wanted.  If true, that would seem to indicate that Continental is for most purposes running this show.   I still wonder what becomes of John Tague at United.

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American Airlines is a pretty conservative organization.  It doesn’t hire from outside the airline very often and it manages itself pretty closely.  It is, in many ways, the IBM of the US Airline industry.   Well, the IBM of the 1970’s anyway. 

Mergers and acquisitions haven’t been a very successful pathway for American.  One look at the TWA “merger” which was really a purchase and you’ll understand why.  They tend to focus on their core strengths and it is particularly difficult for them to adopt new staff and destinations.  Purchases, for them, seem to be more about keeping dominance in a particular area rather than growing their business. 

When Delta and Northwest started off on their merger, it was easy to understand why AA was unruffled by the development.  There was no assurance of success on any level be it financial or operational.  Being the biggest isn’t AA’s game nearly as much as being the strongest and I’m sure their management corps looked at that merger and decided it wasn’t something to worry too much about. 

But Delta has had better financial success than AA and it seems to be “right sizing” aircraft to routes and enjoying better yield and that has got to be attention getting on some level.  It got Continental’s attention apparently.  If the Continental / United deal does go through, I have to wonder who AA starts to look at.   It’s one thing to have an aberration in Delta but it is a whole other bag of bananas to have Delta/Northwest and United/Continental next door to you.

So, is it US Airways?  They aren’t just the logical choice because they’re the only legacy airline left.  There is a certain sensibility to the idea.  AA has no hubs out west (just a large presence at LA) and, in fact, has no dominance in any of the areas where US Airways does operate.  Well, Philadelphia is close to Washington DC and NYC but it isn’t the DC or NYC market either.    AA has no southeastern presence either.  Miami is a hub but it isn’t an regional hub like Atlanta or Charlotte. 

There isn’t much fleet compatibility there and I’m not sure there needs to be.  Delta has shown that as long as you have an economy of scale in the aircraft type, you can have it in the fleet and use it to your advantage by rightsizing your aircraft to the route. 

Labor problems?  Well, AA is kind of used to labor problems and their labor unions are so strong that I kind of wonder if they wouldn’t smack all those US Airways EAST/WEST conflicts into shape.  If nothing else, it would give the EAST/WEST unions something to unify over. 

Say, did you know that US Airways CEO Doug Parker used to work for AA?  His wife still does.  Guess who US Airways’ President Scott Kirby used to work for?  Sabre when it was a division of AMR, the holding company for AA.   Two more of the executive team come from Northwest Airlines from an era when they really weren’t that different from AA culturally speaking. 

Both airlines have a lot of debt.  The US Airways team has actually proven itself to be pretty scrappy in many areas.  They cleaned up the Philly problem from US Airways EAST, managed their finances carefully and have continued to be a player despite unresolved challenges.   Neither has really made money though. 

However, a real merger, not just a purchase and dissolution but a merger, has some potential even if AA’s team retains most of the control.  It has some of the same potential that Delta / Northwest had and fewer of the risks that a United/Continental merger has.  It helps the Oneworld alliance as well. 

While I think AA could do it, I also think the chances for them to screw up a real merger are far higher than I would give many other airlines.   I think they would approach it as a takeover and attempt to dominante everything.  And as a result, I think we would see the hubs in Phoenix, Philadelphia and Charlotte slowly fade away over time with nothing much to show for its effort after 10 years.

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Airtran has expressed how happy it is that they did not win their fight to acquire Midwest Airlines a fwe years ago and notes that they are the dominant player in Milwaukee now.  My feelings as well.  It is sometimes difficult to grow a business because of the capital requirements but it’s also very, very hard to integrate two airlines and it rarely realizes the expected benefits often touted during merger talks. 

Bob Fornaro, CEO of Airtran, has also expressed interest in what might be happening with industry consolidation through purchases and mergers and says they want to play a part.  However, it isn’t the role you think.  Airtran sees those developments as opportunities to pick up assets such as aircraft, slots and routes that may have to be divested as a result of a merger between two entities. 

I’m pretty sure that Gary Kelly (CEO of Southwest) would add a “hell yes!” to that. 

The airline industry has seen a lot of growth among the LCC carriers (and whatever you think, US Airways is *not* an LCC carrier despites its stock exchange identifier) and virtually all of that growth has been organic.  These airlines do the work of identifying good business targets and building the business of the route properly.  Each route between two cities is rally a “mini” business of the airline.  To build that business requires investment, time and good analytical skills.  Maintaining that business requires good analytical skills and agility. 

Legacy carriers shun executives from LCC carriers.  If I were to take over as CEO of a legacy carrier, I would head hunt avidly among the LCC carriers.  Those are the industry executives with the talent and skills to run an airline today.  Unfortunately, legacy carriers tend to promote within and stick with their legacy management corps.

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In a BusinessWeek story today, which can be read HERE, I noticed a paragraph that gives some hint as to who wants to be in charge of the new airline if a merger agreement does come about.  It says:

UAL, based in Chicago, and Tempe, Arizona-based US Airways are discussing an all-stock transaction to combine the companies, with the smaller US Airways being the acquirer, said the people familiar, who asked not to be identified because the talks are private. The merger would help United steer travelers to international flights from US Airways’ domestic routes, said one of the people.

That sounds like US Airways management being the “lead” group in a merger and, more importantly, Doug Parker as CEO.  However, I don’t know where US Airways has the financial capability to be the surviving entity either.  (Note:  Just because US Airways is the surviving entity doesn’t mean that the name United Airlines goes away.  They may well choose to keep that name.)  In addition, where does that leave United President John Tague?  He is arguably the executive who has best managed United and who is arguably the one to succeed Glenn Tilton as CEO. 

Doug Parker and team have done a fairly admirable job in keeping US Airways afloat and viable but they still have unresolved issues with their labor unions at present.  Such a merger would mean 3 different groups of pilots who would have fairly strong ideas on which union should represent them and how much they should be paid.  The AmericaWest/US West group is the minority group at present but could potentially regain some leverage and power if they could agree with the United pilots. I find it hard to believe anyof the 3 groups would agree with another.

If they really wanted to do this, I suspect they’ll have to give up some substantive group of routes and, possibly, equipment to gain approval.  The Washington D.C. area is the trouble point since US Airways has a strong position in Washington, Philadelphia and Charlotte and United has a strong position in Washington as well.  I’ll bet Southwest could be interested in paying for routes into and out of Washington National airport but I’ll also bet that UA/US doesn’t want Southwest having a foothold there either.

None of this makes really good sense.  If this is a real negotiation for a merger, I don’t see it happening without giving up lots of advantage in Washington which hurts the merger potential.  If it is an attempt to bring someone like Continental to the table, I think Continental is smarter than that.  That leaves American Airlines and they just don’t seem to like mergers like that.  They don’t mind acquisitions but mergers aren’t their cup of tea.  However, one could make a case for an AA/US merger that might actually have some benefits similar to the Delta/Northwest merger. 

But I seriously doubt AA’s unions would cooperate with a merger like that.

Some analysts see Continental making a bid.  I don’t.  Merging with United doesn’t give them any advantage they don’t already have and saddles them with labor problems and a fleet that is aging and which doesn’t mix with Continental’s well at all.  People keep pointing to United’s position on Asian routes but I would point out that if Continental had the equipment, they could probably siphon off United’s customers without buying the company.  Coincidentally, Continental has early 787 positions that could allow them to do just that.  I just don’t see Continental going for this.

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With the news that US Airways and United are in merger talks, the subject of mergers and industry consolidation among US airlines has been reheated to a high temperature again.  For the past several years, there has been a lot of talk about the need for consolidation among airlines in the US in order to return to profitability and there are many advocates (such as Doug Parker and Glenn Tilton of US Airways and United respectively). 

New fees seem to have brought in additional revenue but no one can seem to really claim that it has changed the equation for earning a profit for airlines.  Advocates say these new fees are helping airlines find a path back to earning a profit and I certainly think that experimentation with these fees isn’t over. 

Oil is always a frequent component of profitability.  Soaring oil prices just two years ago nearly brought several airlines to their knees but also brought huge profits to other airlines who engage in hedging their fuel costs.  I don’t think anyone would disagree that a more stable oil market would not only benefit the airlines but a lot of other industries.  The wide oscillations of fuel prices have brought a big element of uncertainty to many parts of the economy. 

I’m not sure consolidation is really the answer, however.  Frankly, I think one big mistake of the 1990’s and 2000’s is that we have permitted airlines to go through bankruptcies (some multiple times) and reorganize themselves rather than being more insistent on a liquidation or two.  It’s politically difficult to do so because liquidating a large legacy airline means tens of thousands of people suddenly becoming unemployed. 

Yes, the airline industry is a network business to a large degree and network businesses can do better if they grow larger and capture more market share.  I question how viable that is over the long term without restructuring other legacy costs as well.  I think it is a nice, immediate answer and certainly offers short term (2 to 5 years) gains in share prices but there are other issues that need to be decided as well.

Seniority is king in the airline business and I’ve really come to believe that that is a huge obstacle to health for many airlines.  Airlines have to compete on price in the market place but are not allowed to compete on salaries in the employment market place.  Union contracts based on seniority are killing many airlines.  Mind you, that isn’t to say that airline employees don’t have legitimate issues too, they do. 

Airline employees are expected to quite literally work for poverty wages for years before starting to earn a real family supporting wage and then finally make it to a level for their last 10 or 15 years of work careers where they earn extremely generous wages for the exact same work that a junior level employee does for a salary that is unable to provide modest life.   This disparity has to stop.  Entry level wages should be higher and senior level wages should be lower.  Airline crew should be able to move between airlines without having to re-set to the lowest wage scale again.  We have enough airlines in this country that it is somewhat absurd to believe that a strike at one major airline threatens the national economy.  It doesn’t.  Airline employees deserve to be able to agree on a contract in a much more timely fashion.  Failing to do this results in an even greater tenacious hold to seniority since it is the only thing that raises wages.

LCC airlines have managed to remain profitable and grow but only by keeping their business model flat with respect to equipment and staff.  This allows them to keep productivity high and prevent creeping wages based on a structure that makes weight and distance the prime factor in pay.   Actual work loads and skill sets are secondary in paying flight crew. 

No, I’m not sure we need more consolidations and mergers and, frankly, I don’t think such things would substantially raise airfares given that LCC’s are pretty adept at spotting opportunities and entering markets.  Virtually the only thing that keeps them from certain routes is legacy airlines holding monopolies on airport space or slots.   Even then, those LCC’s are very good at looking for ways around those problems to gain a foothold.  Notice how vigorously Delta and US Airways are trying to keep Southwest Airlines from gaining more slots in NYC?

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I just saw this report on a New York Times blog HERE today.  To summarize, supposedly people writing this blog have had it confirmed by insiders that United and US Airways are in merger talks.  Mind you, this wouldn’t be the first time this rumour has gone out although it has been some time since I’ve seen it.

It would make sense on several levels.  I’ve always thought that those two companies were more compatible than United and Continental both from a fleet point of view as well as a hub point of view.  It would definitely have some challenges in front of it as a merger in certain markets (Washington D.C. for instance) and labor issues that exist at both companies would kind of worry me about getting a real deal done.

I also wonder at who would run such a proposed entity.  Doug Parker of US Airways hasn’t shown much interest (if at all) in being second fiddle to anyone else in any proposed mergers.  United’s Glenn Tilton would likely be amenable to stepping up to a non-executive Chairman role or leaving altogether but there is a firm “second in command” at United in John Tague serving as President already and who likely expects to rise further with some real justification.  Since he and Mr. Parker are essentially contemporaries, they would definitely be in competition with each other to get the top executive job.

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There have been some interesting comments in the news today made by Continental’s new CEO, Jeff Smisek.   First, he seems the switch in alliances as a very good thing for Continental but it is way too early for us to see that as anything other than justification for the switch.  It was notable that he referred to being in the SkyTeam partnership as problematic since they felt Delta was trying to kill them.  I’m not sure Delta was trying to kill them but I don’t think Delta saw them as adding value probably. 

Another comment is one I’ve been waiting for from an airline.  Mr. Smisek says Continental will cancel flights before risking fines under the new rules for 3 hour delays.  I’ve been waiting for an airline to make that statement publicly because the rule is about to go into effect but also because the winter weather this year has been atrocious for northeastern airline operations.  No airline likes new rules.  No airline ever embraced a rule that punished its violators with fines.  Even the most progressive of airlines hate change.  But airlines have been relatively quiet for the past 2 months of winter and that made me wonder if I was ever going to hear threats of cancellations.

Well, to my surprise, it was Continental that finally stepped up to the plate.  The thing is, if one looks at what winter did to airline operations so far this eyar, any flights that got cancelled would have had to be cancelled anyway.  There might have been a handful that could have gotten off if given 4 hours instead of 3 but it would have literally been a handful.  What has been notable is just how quickly and quietly the airlines recovered their operations after each event.  No outraged passengers were found on the news complaining either. 

The airlines were all negatively impacted by the storms and all lost a significant amount of revenue because of that.  It was unavoidable and it wasn’t because of the 3 hour rule looming in front of them.  That’s how the airline business rolls sometimes.

The final notable comment is comes from Continental reiterating that it may be open to a merger in the future.  They don’t see the Delta/Northwest merger as being in the books as a success yet and I agree.  They do, however, believe that if that merger does prove successful, it points to what Continental needs to consider in the future.  I don’t see this happening any time soon at all.  The truth is, Delta got the best partner available in the US.  The next 2 candidates come with a lot of baggage that isn’t easily solved by even in the best managers in the industry:  United and US Airways. 

I think we’ll see Continental exploit its membership in the Star Alliance and grow itself organically rather than by merger.  There is one company that, if I were Continental, I would be interested in buying.  Alaska Airlines.  The problem is, if they make a move on Alaska, it will become a bidding war between AA, Delta and Continental.   Maybe United even enter into that fight.  Continental doesn’t have the war chest to win that fight.  Not right now.  If they do recover and re-start their growth and if Delta’s merger doesn’t prove as successful as it hopes, they would have a chance.  Even at that, I think AA would fight very, very hard to win that battle just to keep Continental off the west coast.

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Instead of mergers galore, I think what this industry really needs is growth. 

To most people, that sounds crazy in light of the present economic situation in the industry.  It depends on who I think should be growing, doesn’t it?  We need to see more growth and expansion from airlines like SWA, Airtran and jetBlue.  Heck, let’s throw Virgin America into that mix too.  Those are the airlines that are going to drive service and price in this business for the foreseeable future. 

Now, how they should grow is up for debate.  Each of those airlines is pretty good at what it does and how it does it so trying to merge with an equal really isn’t a great idea.  They shouldn’t dilute their corporate culture in favor of growth at any cost.  However, that doesn’t mean you can’t pick up a deal here and there.  Frontier was a perfect example of an airline that would have been a good buy for any one of those airlines.  In hindsight, there should have been a bit more of a bidding war for Frontier.

There aren’t a whole lot of smaller airlines in this country.  Frankly, I think Virgin America is more of a candidate to be taken over than to consume someone else.   Sun Country Airlines still looks good to me, particularly for someone who wants an good entry into the Minneapolis / St. Paul Market.  There was a time when it would be very unwise for most airlines to attempt to compete with Northwest Airlines in that market.  Now that they are Delta, have 48 hubs and are headquartered in Atlanta, I suspect an airline could get an edge into that market.

But there are other growth opportunities out there.  DFW has space to be a focus city for an airline.  So does Houston.  Las Vegas is no longer to be a hub for US Airways.   St. Louis is an old city but it is still a city of industry with an airport that has nothing but crickets chirping in it.  There are plenty of regions lacking in good competition still.

I don’t think a merger of legacy airlines will do anyone any good.  Oh, it would take come capacity out of the system which would probably raise prices on *some* routes.  I’m not sure if that is “good” for the consumer.  It might create further dominance of a region or hub and I don’t see the benefit in that.  The Delta/Northwest merger was one that worked because it labor issues were settled, there wasn’t a whole lot of overlap between the two companies routes and each company was accepting of the idea.   Those circumstances don’t occur very often.

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There has been quite a lot of talk in the media about mergers recently.  Financial analysts are high on the idea and two airlines in particular have batted their eyes at potential suitors again. 

The CFOs of both United Airlines and US Airways have made recently comments stating they see more consolidation needed in the US airline industry and both said their airlines remain open to the idea of merging with someone.  No big surprise because both of those airlines are arguably the poorest performing legacy airlines in the US.   It’s also no big surprise that financial analysts now want to see another merger because they’ve seen the financial response to the Delta/Northwest merger. 

I don’t see it happening myself.  Neither US Airways nor United Airlines happen to be particularly attractive properties for another airline for one.  Neither American nor Continental really have anything to gain by mating up with those two for example.  Well, Continental could benefit from UA’s Chicago hub and its international business.  American already has a nicely balanced business and, more importantly, it needs to focus on its labor problems and get those solved first. 

Continental has done better by managing itself and its employees carefully and really isn’t inclined to pick up one of the two airlines with some of the worst labor relations around.  They’re kind of smart over at Continental.  Now that they’re in the Star Alliance, they have the best of both worlds going for them.

So why don’t UA and US join together?  Well, their hubs would fit together kind of nice and there would be some nice synergies to be realized in consoldating operations.  Even their fleets kind of work together.  However, UA is headed by Glenn Tilton who isn’t interested in giving up his position to someone else unless they, too, are an airline titan.  He’d benefit from a merger personally but his ego doesn’t seem to want to let him have UA be the “consumed” airline.  He wants to buy and consume someone else. 

US Airways is being managed by Doug Parker who has plenty on his hands already with a pilot group that is so dysfunctional that it would make wife-beating appear respectable and his airline is short cash anyway.  He’s got no money to buy anything with and his somewhat anemic route structure isn’t all that attractive to any other airline.  No one wants his labor problems at all. 

Besides, I”m not sure consolidation is what this industry needs.  A liquidation could actually be the better answer.  More on that tomorrow.

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The Detroit Free Press reports that the Northwest Airlines logos have been disappearing throughout Detroit Metro Airport this week.  Monday, employees began wearing the Delta Airlines uniform as well. 

The change at the Detroit hub for Northwest signals that Delta is proceeding according to plan in its merger with Northwest Airlines which was consummated just 5 months ago.  There are now 33 Northwest airplanes painted in Delta colors and Delta expects to have more than 250 repainted by the end of 2010.

For the time being, Northwest Airlines remains a wholly owned subsidiary of Delta Airlines until the two airlines’ Certificates of Operations are merged.  This typically can take from 1 to 2 years to accomplish at it involves harmonizing a vast amount of policy and procedure when it comes to flight operations and maintenance.  So far, Delta has made quick progress with bringing the two operations together on a pace that is notably quicker than that of America West and US Airways.

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The US Justice Department approved the merger between Delta Airlines and Northwest Airlines today.   The two companies will now begin to work on executing the combination as quickly as possible and it should culminate with a combined operating certificate in 1 to 2 years. 

In the meantime, Delta and Northwest have already made a great deal of progress towards completing the merger.  The executive team has been selected, agreements with pilots have been obtained and each company has been working pretty hard towards merging the culture of each airline together.  While no doubt there are bumps in the road still to be encountered, this particular merger shows great signs of being accomplished with relatively little strife. 

Flight Attendants are targeted for being a trouble area.  Delta’s flight attendants are non-union and while there have been a few votes over the years to unionize, all have failed pretty soundly.  Northwest’s flight attendants are unionized and have been characterized as even miitant.  Delta’s CEO, Richard Anderson, has urged that everyone work together and while his stated preference is for no further unionization (and he has backed that up by being very willing to negotiate differences), he also has said that he and the rest of the executive team will abide by whatever vote there is.  It is likely that the flight attendants will have a vote after the merger is officially executed and it is likely that it will be in favor of unionization since a combination of Northwest’s flight attendants with the minority of Delta flight attendants in favor of a union would win any vote.

While both CEOs of each airline have professed that such a diverse fleet of aircraft will permit them to “right size” aircraft to a particular route, it is highly likely that the fleet will be pared down over time.   Northwest’s youngest aircraft are manufactured by Airbus and Delta’s fleet is comprised entirely of Boeing products.   Certainly both major aircraft manufacturers will see an opportunity with this merger and both will be pitching their mainstay aircraft lines, the Airbus A320 series and the Boeing 737 series.  With an gentleman’s agreement in place between Delta and Boeing that gives Delta preferential delivery slots, this is Boeing’s opportunity to lose.

A good guess is that, initially, the Douglas DC-9 fleet will continue to be eliminated and bases for the Airbus A320 and Boeing 737 fleets will be established at selected hubs.   It is possible that the Airbus A330 fleet will be phased out in favor of more Boeing products such as the new 787 of which Northwest already has a significant order on.  The 747 fleet will most likely be phased out over time in favor of the 777-300 and which Delta already owns in the 200ER/LR version. 

The combination of these two airlines will form the world’s largest airline both by revenue and traffic.  This will even dwarf American Airlines by a significant degree.  However, because of industry contraction and the obvious economies and advantages to be gained by constraining capacity in markets that the new Delta will be dominant in, it is likely that the airline will actually contract both its fleet and, to some degree, its employees.  However, major layoffs of any significant numbers are very unlikely and most contraction is likely to be done through natural attrition.

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Northwest Airlines shareholders approved their merger deal with Delta Airlines this morning.  Delta shareholders meet to approve the merger this afternoon. 

While this is for most purposes a pro forma part of the process, it is another step forward in this merger.

What I continue to wonder about is the new corporate identity.  Will Northwest’s heritage and history survive in some small way?  I’ve seen some concepts done by people that turn the Delta “widget” into point on a compass.  PlaneBuzz has some images that show it looking something like THIS.

And I must say I like the concepts.  I do think the circle on the fuselage is a bit busy but it works on the tail just fine.   I suspect, however, that the Delta identity will remain the same and Northwest’s identity will fade away as airplanes and uniforms are changed over.

Filed under: Airline Fleets, Airline News by ajax
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