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Indy

Posted: Mon Apr 14, 2008 08:57:36 pm

Indy
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Joined: 15 Jun 2005
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Location: Indianapolis, IN

Well this is exciting news for some and not so exciting news for others. This still has to be approved by shareholders (pretty much certain) and must receive regulatory approval (almost certain).

Here is the official press release from Northwest's website.


Current News Releases
Delta Air Lines, Northwest Airlines Combining To Create America's Premier Airline

Customers, communities to benefit from expanded global route system, more competitive, financially secure airline

No hub closures; improved international access to benefit small communities

Merger helps offset record oil prices, creates stronger global airline to compete in Open Skies environment

Merger combines Deltaâ??s strengths in the South, Mountain West, Northeast, Europe and Latin America with Northwestâ??s leading positions in the Midwest, Canada and Asia; competition will be preserved and enhanced as a result of complementary networks

Delta pilot leadership reaches agreement on post-merger contract

Employees to be provided seniority protection and equity in the new airline

World headquarters of combined airline to be in Atlanta, with executive offices in Minneapolis/St. Paul and major airline operations and employee base remaining in Minnesota

Integrated SkyTeam frequent flyer programs and partner networks enable faster integration; existing Air France, KLM joint venture partnerships strengthened

ATLANTA, Georgia and EAGAN, Minnesota â?? April 14, 2008 â?? Delta Air Lines Inc. (NYSE: DAL) and Northwest Airlines Corporation (NYSE: NWA) today announced an agreement in which the two carriers will combine in an all-stock transaction with a combined enterprise value of $17.7 billion, creating Americaâ??s premier global airline. The new airline, which will be called Delta, will provide employees with greater job security, an equity stake in the combined airline, and a more stable platform for future growth in the face of significant economic pressures from rising fuel costs and intense competition. Small communities throughout the United States will enjoy enhanced access to more destinations worldwide. Customers also will benefit from the combined carriersâ?? complementary route networks, which together will offer people greater choice, competitive fares and a superior travel experience to more cities than any other airline. In addition, combining Delta and Northwest will create a global U.S. flag carrier strongly positioned to compete with foreign airlines that are continuing to increase service to the United States.

Delta CEO Richard Anderson will be chief executive officer of the combined company. Delta Chairman of the Board Daniel Carp will become chairman of the new Board of Directors and Northwest chairman Roy Bostock will become vice chairman. Ed Bastian will be president and chief financial officer. The board of directors will be made up of 13 members, seven of whom will come from Deltaâ??s board, including Anderson, and five of whom will come from Northwestâ??s board, including Bostock and Doug Steenland, the current Northwest CEO. One director will come from the Air Line Pilots Association (ALPA).

Delta will have executive offices in Atlanta, Minneapolis/St. Paul and New York, and international executive offices in Amsterdam, Paris and Tokyo. The companyâ??s world headquarters will be in Atlanta. Delta is committed to retaining significant jobs, operations and facilities in Minnesota.

Combined, the company and its regional partners will provide access to more than 390 destinations in 67 countries. Delta and Northwest, together, will have more than $35 billion in aggregate annual revenues, operate a mainline fleet of nearly 800 aircraft and employ approximately 75,000 people worldwide.

In an industry where the U.S. network carriers have shed more than 150,000 jobs and lost more than $29 billion since 2001, the combination of Delta and Northwest creates a company with a more resilient business model that is better able to withstand volatile fuel prices than either can on a standalone basis. Merging Delta and Northwest is the most effective way to offset higher fuel prices and improve efficiencies, increase international presence and fund long-term investment in the business.

The transaction is expected to generate more than $1 billion in annual revenue and cost synergies from more effective aircraft utilization, a more comprehensive and diversified route system and cost synergies from reduced overhead and improved operational efficiency. The company expects to incur one-time cash costs to not exceed $1 billion to integrate the two airlines. The combined company will have a stronger, more durable financial base and one of the strongest balance sheets in the industry, with expected liquidity of nearly $7 billion at closing.

Under the terms of the transaction, Northwest shareholders will receive 1.25 Delta shares for each Northwest share they own. This exchange ratio represents a premium to Northwest shareholders of 16.8 percent based on April 14 closing prices. The transaction is expected to be accretive to current Delta shareholders in year one excluding one-time costs. The merger is subject to the approval of Delta and Northwest shareholders and regulatory approvals. It is expected that the regulatory review period will be completed later this year.

Richard Anderson, Delta CEO, stated: â??We said we would only enter into a consolidation transaction if it was right for all of our constituencies; Delta and Northwest are a perfect fit. Today, weâ??re announcing a transaction that is about addition, not subtraction, and combines end-to-end networks that open a world of opportunities for our customers and employees. We believe by partnering with our employees, including providing equity to U.S.-based employees of Delta and Northwest, this combination is off to the right start. Together, we are creating Americaâ??s leading airline â?? an airline that is financially secure, able to invest in our employees and our customers, and built to thrive in an increasingly competitive marketplace.â?

Doug Steenland, Northwest CEO, said: â??Todayâ??s announcement is exciting for Northwest and its employees. The new carrier will offer superior route diversity across the U.S., Latin America, Europe and Asia and will be better able to overcome the industryâ??s boom-and-bust cycles. The airline will also be better able to match the right planes with the right routes, making transportation more efficient across our entire network. In short, combining the Northwest and Delta networks will allow the strengthened airline to realize its full global potential and invest in its future.â?

Customers, communities to benefit from expanded global route system, more competitive, financially secure airline

The Delta and Northwest merger will offer customers and communities direct service between the United States and the world's major business centers. Specific benefits include:

* Customers will be able to fly to more destinations, have more schedule options and more opportunities to earn and redeem frequent flyer miles in what will become the worldâ??s largest frequent flyer program.

* The merged airline will maintain all hubs at Atlanta, Cincinnati, Detroit, Memphis, Minneapolis/St. Paul, New York-JFK, Salt Lake City, Amsterdam and Tokyo-Narita â?? each of which will benefit from improved global connectivity.

* Delta customers will benefit from Northwestâ??s extensive service to Asian markets and Northwestâ??s customers will have access to Deltaâ??s strengths across the Caribbean, Latin America, Europe, the Middle East and Africa.

* Both airlinesâ?? customers will benefit from a strengthened SkyTeam alliance that more closely aligns the combined airline with its respective trans-Atlantic partners Air France and KLM.

Customers also will benefit from the combined carrierâ??s financial stability. The merger creates one of the strongest balance sheets among major U.S. airlines, permitting the combined airline to invest in its fleet and services to enhance the customer experience. For instance:

* The combination will accelerate the upgrading of existing international aircraft with lie-flat seats and personal on-demand entertainment.

* The combined company will have the opportunity to exercise options for delivery of up to 20 widebody jets between 2010 and 2013 to provide more international service than ever before.

* The combined company also will be able to improve customersâ?? travel experience through new products and services, including enhanced self-service tools, better bag-tracking technology, new seats and refurbished cabin interiors.

No hub closures; improved international access to benefit small communities

This combination will expand Deltaâ??s international and domestic reach, and there will be no reductions in the number of hubs. In addition, building on both airlinesâ?? proud, decades-long history of serving small communities, Delta will improve worldwide connections to small towns and cities across the U.S., enhancing their access to the global marketplace. Following the merger, Delta will serve more than 140 small communities in the United States â?? more than any other airline.

â??Delta and Northwest are an excellent strategic fit, with complementary and geographically distinct route systems,â? said Edward Bastian, Delta president and chief financial officer. â??Together, we will have a more robust platform for profitable international growth. Combining both carriersâ?? international and domestic strengths, with our worldwide SkyTeam partners, we are well positioned to lead the industry and deliver value to our shareholders.â?

Merger helps offset record oil prices, creates stronger global airline to compete in Open Skies environment

Record fuel prices have fundamentally changed the economics of the airline industry. Fuel is the highest single expense for Delta and Northwest, significantly eroding the financial benefits of restructuring and placing the airlinesâ?? new found strength and stability at long-term risk. At the beginning of 2007, oil prices were approximately $55 a barrel. Now, oil prices have nearly doubled. This dramatic run-up in the price of oil makes the transaction even more compelling.

Internationally, the two carriers, along with their partners at Air France and KLM, will have a broader global network similar in scope and depth to what other foreign flag carriers already possess â?? and a significant presence in key business centers, with improved prospects for growing corporate business globally. This presence is essential for U.S. network carriers due to Open Skies agreements that have expanded aviation markets around the world and have created a more competitive international environment.

Merger combines Deltaâ??s strengths in the South, Mountain West, Northeast, Europe and Latin America with Northwestâ??s leading positions in the Midwest, Canada and Asia; competition will be preserved and enhanced as a result of complementary networks

The Delta-Northwest combination will be pro-competitive. There is little overlap in the nonstop routes the two airlines serve, with direct competitive service on only 12 of more than 1,000 nonstop city pair routes currently flown by both airlines. In fact, the merger will create a stronger, more efficient global competitor. Discount carriers, which now carry one third of domestic passengers, and other network airlines will remain competitors in the airlineâ??s markets.

Delta pilot leadership reaches agreement on post-merger contract

Delta also today announced that it has reached agreement with the companyâ??s pilot leadership to extend its existing collective bargaining agreement through the end of 2012. The agreement, which is subject to pilot ratification, facilitates the realization of the revenue synergies of the combined companies once the transaction is completed. It also provides the Delta pilots a 3.5 percent equity stake in the new company and other enhancements to their current contract.

Delta will use its best efforts to reach a combined Delta-Northwest pilot agreement, including resolution of pilot seniority integration, prior to the closing of the merger.

Employees to be provided seniority protection and equity in the new airline

Frontline employees of both airlines will be provided seniority protection through a fair and equitable seniority integration process, as the airlines are combined. In addition, U.S.-based non-pilot employees of both companies will be provided a 4 percent equity stake in the new airline upon closing. The company also expects no involuntary furloughs of frontline employees as a result of this transaction and the existing pension plans for both companiesâ?? employees will be protected. Additionally, all Delta and Northwest employees will enjoy reciprocal pass privileges on both airlines, beginning as soon as possible during the regulatory review process.

â??We are pleased that the people of Delta and Northwest will participate directly in the growth and future success of the combined company,â? Anderson said. â??Thanks to the hard work and professionalism of the more than 75,000 Delta and Northwest employees over the last few years, our new, combined company will be positioned for a bright future as a leader in the global airline industry.â?

Integrated SkyTeam frequent flyer programs and partner networks enable faster integration; existing Air France, KLM joint venture partnerships strengthened

Delta and Northwestâ??s complementary networks and common membership in the SkyTeam alliance will ease the integration risk that has complicated some airline mergers. The carriers participate in a joint SkyTeam frequent flyer program with common customer lounges and airline partner networks. In addition, they share a common IT platform, which has already been partially integrated through the existing alliance between Delta and Northwest. Further, the combination of Delta and Northwest will enable an accelerated joint venture integration with Air France/KLM, creating the industryâ??s leading alliance network.

Over the course of the regulatory process, a detailed integration plan will be created by the transition committee made up of leaders from both companies. After closing of the merger, the consolidation of overlapping corporate and administrative functions will result in some job reductions or company-paid transfers. Involuntary reductions for management and administrative employees will be minimized by normal attrition.

Advisers

Financial advisers to Delta were Greenhill & Co. and Merrill Lynch & Co. and legal advisers were Wachtell, Lipton, Rosen & Katz and Hunton & Williams, LLP. Financial advisers to Northwest were Morgan Stanley and J.P. Morgan Securities and legal advisers were Simpson Thacher & Bartlett LLP and O'Melveny & Myers, LLP.

Investor and Analyst Call Details

There will be a webcast for the investment community on Tuesday, April 15, at 9:00 a.m. EDT. Participants will include Richard Anderson, Deltaâ??s CEO; Doug Steenland, Northwestâ??s President and CEO; and Ed Bastian, Deltaâ??s President and CFO.

Webcast log-in is available on: https://www.delta.com/about_de...ta/investor_relations/webcasts or
http://ir.nwa.com

A replay of the webcast will be archived for 30 days. Further information is available in the investor relations section of delta.com.

Press Conference Details and Satellite Coordinates

On Tuesday, April 15, at 10:30 a.m. EDT, Delta and Northwest will hold a joint press conference at the Intercontinental, The Barclay, New York, 111 East 48th St, New York, NY 10017.

Participants will include Richard Anderson, Deltaâ??s CEO; Doug Steenland, Northwestâ??s President and CEO; and Ed Bastian, Deltaâ??s President and CFO.

The press conference will be webcast LIVE over the internet at www.newglobalairline.com. The replay of the webcast will be archived for 30 days.

The press conference will also be available LIVE via satellite through the following feed:
Feed time: 1000-1130 EDT w/15 approx. (test time from 10-10:30 AM)
Coordinates: KU-band: GAL11 / Transponder 15 / Audio 6.2 & 6.8 / Downlink frequency: 12000 (H)

B-Roll Information and Satellite Coordinates

B-roll footage with sound bites from Richard Anderson and Ed Bastian and Delta and Northwest operations will be available via satellite. To access the B-roll feed via satellite, use the coordinates below.

Monday, April 14, 2008
Feed time: 10:00 â?? 10:30 PM EDT
Coordinates: C-Band: AMC 03 / Transponder 03 / Audio 6.2 & 6.8 / Downlink frequency: 3760 (H)
****This story will be available on the Pathfire DMG****
Under Video News Feeds at Medialink
Story Number: 04NY08-0095
Story Slug: Delta and Northwest Create Global Airline

Tuesday April 15, 2008
Feed time: 4:00-4:30 AM EDT
Coordinates: C-Band: AMC 03 / Transponder 03 / Audio 6.2 & 6.8 / Downlink frequency 3760 (H)

Feed time: 10:00-10:30 AM EDT
Feed time: 1:00 â?? 1:30 PM EDT
Coordinates: C-Band: GAL 25 (formerly IA 5) / Transponder 19 / Audio 6.2 & 6.8 / Downlink frequency 4080 (V)

Feed time: 2:00-2:30 PM EDT - Includes footage of press conference
Feed time: 7:00-7:30 PM EDT
Coordinates: C-Band: AMC 03 / Transponder 05 / Audio 6.2 & 6.8 / Downlink frequency 3800 (H)

Audio News Release

An audio news release will be available for download on www.newglobalairline.com

Photography

Photographs of both companies operations and management teams is available on the news center section of www.newglobalairline.com

Contact Details:

Delta Contacts
Delta Media Relations: 404 715 2554
Delta Investor Relations: 404 715 2170
Brunswick Group: Steve Lipin / Cindy Leggett-Flynn 212 333 3810

Northwest Contacts
Northwest Media Relations: 612 726 2331
Northwest Investor Relations: 800 953 3332

Further details regarding the combination can be found at www.newglobalairline.com

About Delta Air Lines

Delta Air Lines operates service to more worldwide destinations than any airline with Delta and Delta Connection flights to 306 destinations in 58 countries. Delta has added more international capacity than any major U.S. airline during the last two years and is the leader across the Atlantic with flights to 37 trans-Atlantic markets. To Latin America and the Caribbean, Delta offers more than 517 weekly flights to 57 destinations. Delta's marketing alliances also allow customers to earn and redeem SkyMiles on nearly 16,409 flights offered by SkyTeam and other partners. Delta is a founding member of SkyTeam, a global airline alliance that provides customers with extensive worldwide destinations, flights and services. Including its SkyTeam and worldwide codeshare partners, Delta offers flights to 841 worldwide destinations in 162 countries. Customers can check in for flights, print boarding passes and check flight status at delta.com.

About Northwest Airlines

Northwest Airlines is one of the worldâ??s largest airlines with hubs at Detroit, Minneapolis/St. Paul, Memphis, Tokyo and Amsterdam, and approximately 1,400 daily departures. Northwest is a member of SkyTeam, an airline alliance that offers customers one of the worldâ??s most extensive global networks. Northwest and its travel partners serve more than 1,000 cities in excess of 160 countries on six continents. For more information pertaining to Northwest go to the Web site at www.nwa.com.

Forward Looking Statements

This press release includes â??forward-looking statementsâ? within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Words such as â??expect,â?? â??estimate,â? â??project,â? â??budget,â? â??forecast,â? â??anticipate,â? â??intend,â? â??plan,â? â??may,â? â??will,â? â??could,â? â??should,â? â??believes,â? â??predicts,â? â??potential,â? â??continue,â? and similar expressions are intended to identify such forward-looking statements. These forward-looking statements include, without limitation, Delta's and Northwestâ??s expectations with respect to the synergies, costs and charges and capitalization, anticipated financial impacts of the merger transaction and related transactions; approval of the merger transaction and related transactions by shareholders; the satisfaction of the closing conditions to the merger transaction and related transactions; and the timing of the completion of the merger transaction and related transactions.

These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from the expected results. Most of these factors are outside our control and difficult to predict. Factors that may cause such differences include, but are not limited to, the possibility that the expected synergies will not be realized, or will not be realized within the expected time period, due to, among other things, (1) the airline pricing environment; (2) competitive actions taken by other airlines; (3) general economic conditions; (4) changes in jet fuel prices; (5) actions taken or conditions imposed by the United States and foreign governments; (6) the willingness of customers to travel; (7) difficulties in integrating the operations of the two airlines; (Cool the impact of labor relations, and (9) fluctuations in foreign currency exchange rates. Other factors include the possibility that the merger does not close, including due to the failure to receive required stockholder or regulatory approvals, or the failure of other closing conditions.

Delta cautions that the foregoing list of factors is not exclusive. Additional information concerning these and other risk factors is contained in Deltaâ??s and Northwestâ??s most recently filed Forms 10-K. All subsequent written and oral forward-looking statements concerning Delta, Northwest, the merger, the related transactions or other matters and attributable to Delta or Northwest or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements above. Delta and Northwest do not undertake any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this news release.

Additional Information About the Merger and Where to Find It

In connection with the proposed merger, Delta will file with the Securities and Exchange Commission (â??SECâ?) a Registration Statement on Form S-4 that will include a joint proxy statement of Delta and Northwest that also constitutes a prospectus of Delta. Delta and Northwest will mail the joint proxy statement/prospectus to their stockholders. Delta and Northwest urge investors and security holders to read the joint proxy statement/prospectus regarding the proposed merger when it becomes available because it will contain important information. You may obtain copies of all documents filed with the SEC regarding this transaction, free of charge, at the SECâ??s website (www.sec.gov). You may also obtain these documents, free of charge, from Deltaâ??s website (www.delta.com) under the tab â??About Deltaâ? and then under the heading â??Investor Relationsâ? and then under the item â??SEC Filings.â? You may also obtain these documents, free of charge, from Northwestâ??s website (www.nwa.com) under the tab â??About Northwestâ? and then under the heading â??Investor Relationsâ? and then under the item â??SEC Filings and Section 16 Filings.â?

Delta, Northwest and their respective directors, executive officers and certain other members of management and employees may be soliciting proxies from Delta and Northwest stockholders in favor of the merger. Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of Delta and Northwest stockholders in connection with the proposed merger will be set forth in the proxy statement/prospectus when it is filed with the SEC. You can find information about Deltaâ??s executive officers and directors in its Annual Reports on Form 10-K (including any amendments thereto), Current Reports on Form 8-K and other documents that have previously been filed with the SEC since April 30, 2007 as well as in its definitive proxy statement to be filed with the SEC related to Deltaâ??s 2008 Annual Meeting of Stockholders. You can find information about Northwestâ??s executive officers and directors in its Annual Reports on Form 10-K (including any amendments thereto), Current Reports on Form 8-K and other documents that have previously been filed with the SEC since May 31, 2007 as well as in its definitive proxy statement to be filed with the SEC related to Northwestâ??s 2008 Annual Meeting of Stockholders. You can obtain free copies of these documents from Delta and Northwest using the contact information above.


Official Release: http://www.nwa.com/corpinfo/newsc/2008/pr041420081978.html

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Indy

Posted: Mon Apr 14, 2008 11:28:13 pm

Indy
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Joined: 15 Jun 2005
Posts: 2316
Location: Indianapolis, IN

So what does this mean for IND? Well I am making an assumption here that the two airlines will be under a new contract for the terminal before the merger is complete (pending shareholder and regulatory approval) so between them they will control I'm guessing a dozen gates and a club. Had the merger been approved sooner that might have changed. My guess is for a little while anyway the new airline will have quite a large operation here. Summer of 2009 could feature 25 destinations and 60 daily departures making this the biggest operation since US had a hub here in the 1990's.

I don't know how long of a lease the airlines will have. I doubt it is a one year lease. I would guess two years at minimum. Maybe even as long as five years. With the leases being higher at the new terminal it seems unlikely the airline will allow gates to go unused. I imagine the airport authority will be very eager to work with the new airline as it will account (based on current NW and DL stats) for 32.5% of all passengers served and approximately 2.75 million passengers for 2008 (estimate).

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wanderer

Posted: Mon Apr 14, 2008 11:34:58 pm


Member

Joined: 14 Jun 2006
Posts: 142
Location: IND

I do not expect a whole lot to change until government approval in 6-8 months.

Until then, the "combined carrier" has a website: http://www.newglobalairline.com/

Indy

Posted: Tue Apr 15, 2008 12:21:34 am

Indy
Site Admin

Joined: 15 Jun 2005
Posts: 2316
Location: Indianapolis, IN

I honestly don't expect too much of a change in either direction when the merger is complete. If they add service it would be to fill in gaps with service to some place like San Diego or maybe a return of Salt Lake City. IND is pretty much all o/d and quite a bit of it. Wouldn't make much sense to cut that out of the system. If you do it will open a huge hole for someone like FL to expand service or any other LCC. I'm not sure the new airline will want that. I fully expect in the next 2 to 4 years that CVG will become what IND is to DL/NW. It will become just a large focus city. I don't think you keep two hubs that close together. It didn't work for US with PIT and PHL. It didn't work for AA with ORD and STL. I don't expect it to work for DL with DTW and CVG.

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Boofer

Posted: Wed Apr 16, 2008 09:45:49 am

Boofer
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Joined: 17 Jun 2005
Posts: 949
Location: Carmel, IN

First, if you check out the website, it shows DL has more employees in Indiana than NW. Huh? How can that be? They must not be counting the Pinnacle employees in that number I guess.

Anyway, I agree with you on the hubs, too. Despite what the CEO's have said about keeping all the hubs open, there's no way CVG or MEM will remain. They'll become like PIT - large focus cities, perhaps keeping their very limited international service. I think it will be interesting to see what happens in PDX and SEA as well. SEA could actually get beefed up, in my opinion. And I think LAX, BOS, and MCO will get more attention too.

Which airline has the most to fear from this merger? My vote is FL. Hub ops in ATL and MCO, DL will go straight at them, no question.

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Indy

Posted: Wed Apr 16, 2008 08:25:39 pm

Indy
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Joined: 15 Jun 2005
Posts: 2316
Location: Indianapolis, IN

I agree completely. This is all about creating a monopoly and nothing else. That is one of the cases I will state in my objection I will file against this deal. It is strictly anti competitive. And to make things worse if the new airline approaches failure the government will bail them out at the expense of the taxpayers because while the system can cope with the loss of Northwest or Delta it cannot cope with the loss of the new Delta. It would severely cripple the domestic air transportation system. This is why the merger should not be approved.

If the government is so concerned about the future of the industry it should re-regulate it. Otherwise deny the merger and let the weak fail.

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Boofer

Posted: Sat Apr 19, 2008 07:50:39 pm

Boofer
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Joined: 17 Jun 2005
Posts: 949
Location: Carmel, IN

Indy wrote:

I agree completely. This is all about creating a monopoly and nothing else. That is one of the cases I will state in my objection I will file against this deal. It is strictly anti competitive. And to make things worse if the new airline approaches failure the government will bail them out at the expense of the taxpayers because while the system can cope with the loss of Northwest or Delta it cannot cope with the loss of the new Delta. It would severely cripple the domestic air transportation system. This is why the merger should not be approved.

If the government is so concerned about the future of the industry it should re-regulate it. Otherwise deny the merger and let the weak fail.


Look. You simply can not have a viable passenger air system that charges fares in the same realm as that of a Greyhound bus ticket. It simply doesn't work. On the one hand, you're saying that the government should get out of the way and let the market work by allowing weak airlines to fail. But on the other hand, you're saying the government should control the markets by disallowing an airline merger. You can't have it both ways. Either they have to prop up failures AND block mergers, or allow the market to function free from government control. Given our open free-market economy, you simply can not continue to expect air service to every little cow town in America that costs $150 to fly to Orlando and back.

As for blocking the merger because a failure of the combined airline would cripple the air transport system, well what do you think is going to happen if you continue with the status quo? The DL/NW merger is going to create the world's biggest airline, but it's still not going to give them an economic position that is unchallenged. The fact is that there are very low barriers to entry in the passenger airline market. And Open Skies has lowered the last major effective barriers that existed, allowing international carriers free access to the last part of the market that the airlines could count on for profitability. So blocking this merger only hurts the entire passenger airline industry by hampering their ability to effectively compete.

Can I get a peanut crumb with that thimble of Coke?

Indy

Posted: Sat Apr 19, 2008 07:58:38 pm

Indy
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Joined: 15 Jun 2005
Posts: 2316
Location: Indianapolis, IN

Here is my objection to what you've stated. Airlines are charging $150 to fly to Orlando and back because they lack the balls to charge the proper fare to make a profit. Doesn't matter if you have 1 airline or 10 airlines. If they won't charge an appropriate fare they are going bust. They want to merge so they can eliminate that accountability. They want that monopoly protection so they can charge the appropriate fare without fear of losing business. They don't want the responsibility of having ot make that decision now. They could be charging $300 a ticket and making money off of the flight. If an airline wants to charge less than what it costs to run the route that is their problem. Let them fail. Charging appropriately for your product is just responsible management.

If they want to merge and eliminate competition which is what this is really about then let them face the regulators. Don't allow them to have monopoly protection and free reign. Anyone that is allowed to operate as a monopoly or near monopoly should face regulation.

This merger is about being anti competitive and nothing else. Nothing is stopping NW from raising fares to MCO or TPA right now. They could double the price of tickets tomorrow if they wanted.

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Boofer

Posted: Sun Apr 20, 2008 07:53:53 pm

Boofer
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Joined: 17 Jun 2005
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Location: Carmel, IN

It has nothing to do with balls or the lack of them. And it very much does matter if you have 1 airline or 10 airlines. They want to merge so that they have greater pricing power in the market, larger scale to spread their fixed costs, a larger/better position for negotiable costs, and a more complete route network (especially internationally). There is nothing even remotely close to a monopoly happening here.

The way that economists (and the Justice Department, by the way) make a determination on whether there are monopolisitc or oligopolistic features in a market is by measuring the Concentration Ratio (CR). There are more complicated formulae for determining market dominance, but CR is a straightforward measurement. You usually look at either the 4-firm CR or the 5-firm CR to determine whether the industry is getting too concentrated. A 5-firm CR is a more stringent measure. To do this, simply take the combined market shares of the top 5 firms in the industry and add them together. Then calculate the share of the new top 5 firms after the proposed merger. For the domestic U.S. airline industry (domestically is the only way the Justic Department will review this), the current 5-firm CR is 57.1%. That means that the top five airlines (AA, WN, UA, DL, CO) currently have a combined domestic market share of 57.1%. After the DL/NW merger, the 5-firm CR will be 63.8%. The rule of thumb is that any 5-firm CR below 80% is competitive. Also, a monopoly does not exist until a firm has over 25% market share - DL/MW will have 17.5% to AA's 14.8%. In an industry with relatively low barriers to entry, like the U.S. airline industry, it might even be allowable to have a CR of 85% before regulatory action would be deemed necessary. Yes, there will be particular city pairs where the NW/DL dominance will be very high, and there might have to be some regulatory remedy to that. But you're not even close to a monopolistic market - not by a long shot.

My point is, you can't have it both ways. You can't say that the airlines should be allowed to fail but then say they should not be allowed to combine. Either you regulate the industry or you don't. The fact is, there is something stopping NW from raising fares to MCO or TPA tomorrow. If they doubled the prices of those tickets, they wouldn't sell enough tickets to cover their fixed costs. The airline industry has very very high fixed costs. And when you don't cover your fixed costs that very soon you find yourself back in bankruptcy court.

Airline tickets are a near perfect substitute, and there is very high elasticity of demand with air travel. If one airline charges $20 less for the same route at about the same time, customers will switch to the cheaper airline very quickly. If all airlines raise the fare between a particular city pair by 10%, then demand will fall by something very close to 10% in a relatively short period of time. In addition to all that, the airline industry in the aggregate since its inception has not created a single dollar of economic value (Economic Value is essentially the value created by a firm or firms in excess of the cost of capital necessary to create that value). These are measured economic facts. What this all means is that the airline industry is brutally competitive and has never truly been economically profitable. In an industry like that, you have to allow for a lot of churning. Existing airlines must be allowed to merge, new airlines must be allowed to enter the market, and all airlines must be allowed to fail.

Can I get a peanut crumb with that thimble of Coke?

Indy

Posted: Sun Apr 20, 2008 11:34:49 pm

Indy
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Joined: 15 Jun 2005
Posts: 2316
Location: Indianapolis, IN

It seems to me that in this era of high fuel prices the airlines cannot survive in a competitive environment. You said yourself that if one airline lowered a ticket price by $20 that people would switch. If the two airlines merge there will no longer be that choice for the consumer. Since airline management is setting ticket prices to a point that makes them unprofitable it seems eliminating choice for the consumer is the only way around this. You see what happens in CVG when an airline becomes unaccountable when it comes to price.

Whats going to happen when DL/NW merge (if they clear all the hurdles) and they still can't get it done with high oil prices? Are we going to allow them to merge with someone else and create an even larger carrier? They will be too large for the government to allow them to fail.

I've seen the arguments by the airlines and the so called experts that there are too many carriers and too many seats. Translated: There is competition. They want fewer carriers so it will be easier to set higher prices. Much like it is today with gas stations. You have very few choices. There may be a number of names but they are all controlled by a small group. It allows for prices to be set higher than they normally would in an honestly competitive market.

The reality is that the airlines with high fuel prices cannot remain profitable in a truly competitive market. We can blame them for being unwilling to price their product appropriately or we can blame consumers for being cheapskates. I think there is however a very solid argument for regulating the airline industry once again. The airline industry is a critical need industry that is tied heavily to tax dollars and government rules and regulations. So why not go ahead and regulate route prices? Then the airlines can try and win consumers with good schedules, better equipment and better service.

If the system keeps going as it is we will be dealing with this over and over again. The things that caused the airline industry to get into this mess won't go away anytime soon. Oil prices aren't going back under $80 a barrel again... ever. Consumers will continue to be cheap and show no brand loyalty in general. Unless anyone else sees this changing lets just save ourselves a lot of headaches and regulate airline ticket prices.

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Indy

Posted: Tue Jul 01, 2008 01:26:00 am

Indy
Site Admin

Joined: 15 Jun 2005
Posts: 2316
Location: Indianapolis, IN

Right now I'm wondering if allowing this merger to go through is a potentially dangerous thing for the U.S. aviation industry. Shares of NWA and DAL have tanked. NWA is down to $6.66 per share from about $11 on April 14th. DAL is down to $5.70 from about $10 on April 14th.

How does this apply to...


Under the terms of the transaction, Northwest shareholders will receive 1.25 Delta shares for each Northwest share they own. This exchange ratio represents a premium to Northwest shareholders of 16.8 percent based on April 14 closing prices. The transaction is expected to be accretive to current Delta shareholders in year one excluding one-time costs. The merger is subject to the approval of Delta and Northwest shareholders and regulatory approvals. It is expected that the regulatory review period will be completed later this year.


If I understand this correctly NWA shareholders will get stock valued at 1.25 shares @ $10 each. So $12.50 per share when both airlines are now trading at half that amount. It seems like a bad move for DL shareholders.

Also with both airlines taking a beating it would seem unwise to merge the two. The industry can absorb the loss of either NW or DL. It however will be devastating to lose the combined DL/NW carrier. The government would certainly step in and taxpayers would certainly get left holding the tab for a bailout.

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