[QUOTE=CO757;6845296] I haven't read any post saying UA offers "nothing". What they offer is what is a weak point in CO's route structure.

Both companies bring a lot into this. United brings much more than it's coveted route network.

Completely wrong. United Airlines made $50 million of extra revenues with it's Economy Plus program last year and are expecting to double that for next year. All buisinesses are out there to "make money", I have no idea where you are going with that. Just becuase it didn't work for American Airlines doesn't mean it couldn't for United - In fact, that has been proven wrong.


Right, and you are getting these 'facts' from where? Like you previosuly stated, Continental is all about "making money", so just becuase having 3-classes of service doesn't support their route network doesn't mean it doesn't for other airlines. United has a very different market saturation than Continental, one that can support and seemingly demands a true international First product.

Yes, the point was that Comike cannot make up for the lack of a true Pacific/Asian network.

As previously stated, that is a subjective comment and I should have phrased it that way. My only point was that UA flies to key world business markets such as Tokyo, Sydney, London Heathrow, Frankfurt, etc while CO relies mainly on secondary markets and flies narrowbody aircraft on the majority of it's international network. But then again, that entire argument is subjective and I don't expect you to agree;)

You have to realize that Continental's fleet is one of the most modern of all the legacy carriers because they lease out much of their fleet while other airlines, including United, finance their aircraft. As for United being "dirty" that is subjective, especially if you are going to call them some of the most dirty. It is agreed upon however that CO has a fleet in very great condition.

I really look foward to see where this deal goes...what synergies can be constructed from both of these great carriers.

What would that one row generate vs. the 50 Million? CO, AA, DL, NW etc.....don't see the value in it. In fact, TWA tried and removed it...so did AA. Might work for UA, but I think it will go the way of TED....buh bye.


Will do...Dad :p

With MRTC, AA configured their entire Economy section as their own E+.

MRTC required the removal of more than one row of Economy depending on aircraft type.

There was no way to empirically monetize and segment the revenue gained (lost) by this configuration.

Those fliers loyal to AA really had no reason to be given that .. if they weren't loyal, they could still get extra legroom at no extra cost.

There was no way to empirically determine which fliers went out of their way to fly AA because of MRTC.

UA can empirically segment E+ revenue via same-day paid upgrades as well as the annual E+ Access Pass.

Captain Obvious suggests that some actuary has applied a formula to calculate the empircal revenue gained by these two mechanisms and applied that against the lost revenue of one less row (based on average load factor and fare price).

Your argument against E+ vis-a-vis those airlines you mentioned would hold some weight if these carriers employed similar mechanisms to empirically track the increased revenue.

Regarding E+, sure the incremental revenue may be $50 million. That is a lot of money. But it doesn't take into account what the incremental cost of losing six extra seats per aircraft is. That is a lot of seats and it certainly cuts into the alleged profit. Remember, 99.44% of statistics are made up.

I agree with the statement up to a point. Executives act in their own self interest; to the extent the shareholder and personal interests are aligned--or better still congruent--the shareholders win. (I have found that when I keep self interest upfront and center, it helps explain some things that companies do.) It turns out that very few mergers actually have long term benefits for shareholders. :(

Which is why we really need three threads here.

One for the people that want to bicker about the relative merits of CO and UA and their FF programs.

Another for armchair pseudoscientists and quasieconomists who want to trade actuarial rumors and quack economics.

And a third to discuss what actually matters. Who is really going to buy who under what circumstances (if any).

I don't think the statement "by far, the bigger airline" survives even cursory scrutiny. UAUA is larger, but not significantly so. More importantly, IMO, examining the financials of both carriers, together with the respective valuations, it seems that, prorated for size, the market places a higher value on Continental. On any given day, there's only about $1 billion difference in market cap between them. In the most recent quarter, CAL generated $238 million profit on $3.52 billion, while UAUA earned $190 million on $5.18 billion. CAL seems to earn more per dollar of revenue than UAUA. It's not clear to me how pooling these carriers is of benefit to CAL shareholders.

These points about E+ vs MRTC are key and ones that folks never seem to take into account.

The last time I checked CO flies to London, Frankfurt and Tokyo. Yes, I know London is Gatwick, but if you are flying to the "business center" does it really matter if you fly to LHR or LGW? If you are connecting, then that is a different story. I know to some people there is a huge difference between LHR and LGW, but if you are just trying to get to London, both airports get you within 50 miles of the city center.

Anyway, CO also flies to Paris, Brussels, Zurich, Amsterdam, Beijing, Geneva, Madrid, Lisbon, Berlin, Rome, Milan and Hong Kong (Also, Delhi, Tel Aviv, Sao Paulo and Buenos Aires to a lesser extent).

The last time I checked these were either all major business centers or government capitals of some pretty important countries in the world.

Now according to the current (winter) schedules widebody aircraft (777 or 767) fly to the following cities: LGW, CDG, FRA, NRT, HKG, PEK, TLV, DEL, AMS, BRU, ZRH, GVA, MAD, MXP, FCO, GRU & EZE.

That's 17 cities with widebody service, all major business centers, capitals or major cities.

CO's international destinations with 757s are: BRS, MAN, BHX, DUB, BFS, EDI, GLA, OSL, CPH, CGN, HAM, TXL, ARN, LIS, BCN. (Though MAN was a 777 for a long time until they needed it for PEK and DUB/SNN, besides each cities' nonstop, have an extra shared flight that could easily make each cities' nonstop a 762 if they had the plane). For a total of 15...these cities would normally only have connecting service through one of the major super hubs, but CO puts high value on nonstops.

The point is that you minimize CO's international network to a collection of secondary cities and airports with mostly narrowbody jets. Well, I think you don't know CO's network well enough to make that claim.

Yes, we know there is no service to SYD or KIX or SIN or KUL or BKK or NGO or MEL; but that doesn't mean the rest of the network is crap.

- HF

No room for personal opinions and biased comments
 

Interesting discussion thus far.

The whole scenario reminds me a lot of 1986 and the merger frenzy during the year.

While Reagan/Bush sr. and Mrs. Dole at the helm seemed to okay every move, it was not the same a decade before or later where even the most carefully formulated questions send to Washington to get a hint how the authorities would rule on a merger were vigorously blocked and nobody was allowed to merge, period.

Lately, some players in the game came to the conclusion that one transaction would tip off a whole game of industry consolidation and the latest actions by UAL or NW to ( at least ) hire somebody to have a look into certain scenarios is saying a lot. Just like the mid 1980`s.

One has to look over the two oceans however to fully understand what would be possible or not in terms to getting anti-trust immunity to operate as one carrier.

Lufthansa and Air France/KLM are calling the shots at the moment within the airline scene and their respective alliances. Both got huge breaks during the last years when their acquisitions of KLM and Swiss/Eurowings were approved by the EU. At this point, I do not see the EU approving a combined Italian carrier being partly owned by LH and its alliance.

Same is true with a merged UAL and CO , at least as long as US and Delta are separated carriers in two alliances. It might change, if US acquires DL and the carrier would remain in Sky Team or move to Sky Team depending on one`s point of view.

In terms of capacity reductions, the people willing to block mergers are certainly using potentially higher fares to support their point of view.

In fact, the airline industry is growing at a fast pace and even if a merged CO/UAL or DL/US would ( have to ) reduce certain routes, the low cost competition would move into markets sooner or later, so the overall average fare might not change much or fares in relation to inflation and increasing wages might even fall further.

Lack of available equipment is certainly a big obstacle, modern short haul planes are hard to come by these days. The politicians willing to block mergers, because they fear higher fares for the consumers should move to the next hall in Washington to support Virgin America`s bid for an operating license. Branson flying would even further reduce the fear of higher fares.

The big upside for the consumer with fewer airlines would also be more route authorities for combined airlines. In 2007 alone, 4 airlines are competing for one new route to China. Reminds me of the 1980`s again, however this time it is China and not Tokyo. The other funny parallel, AA seem to somehow oversleep the whole thing again.

Where is a Crandall quote, when you need one :D

Maybe the success of European and Asian airlines can be partly based on the fact that they enjoy all the traffic rights they want ( with a very few exceptions )

If the US is not able to negotiate the traffic rights its carriers desire
( discussion is on since 5 decades now ) a worthwhile solution could be fewer US carriers to compete for those rights.

Coming back to the first line of the post, the next economic downturn is coming. The last three ones, at the beginning of the 1980`s, 1990`s and 2000`s already killed and crippled various airlines. Maybe it was not so much deregulation that killed airlines, but the economic downturns…the big difference between the 1980`s and 1990`s and this decade is the fact that in this decade, the airlines needed more time to make a little bit of cash again. The big fear is now, if they can conserve enough cash to sustain the next downcycle.

A merger, where it makes sense will only help all stakeholders. Swiss, KLM or JAS are perfect examples. Alitalia is beyond belief anyway and Iberia will have a tough time surviving the next years.

Interesting read, very objective story with several different opinions:

http://www.nytimes.com/2006/12/14/business/14air.html

I completely disagreed with Daley's destruction of Meigs Field, but your characterization of it as "illegal" is simply wrong. I happen to be friends with the Zoning Attorney for the City of Chicago who was lead on this matter.

It was entirely within the rights of the City to do it. It was the wrong thing to do IMO, but them's the breaks.

Best, Dave

We do have flights to NGO via HNL!

I am excited about the possibilities for this merger. You can say what you wish, but the fact of the matter is that CO is better managed than UA. Glen Tilton was hired to bring UA through the difficult path of bankruptcy and, in my opinion, did a great job. Strategically, UA and CO both bring different, crucial, aspects to any merger.

CO
-Best management team at a network airline
-Rationalized Fleet
-Reasonably happy employees
-Network targeted to two global industries (i.e. finance and energy)

UA
-Leading airline in the best alliance. CO is odd man out in SkyTeam
-Better route authorities (NRT & LHR)
-CO has the strategy of building a domestic feed to connect global destinations. UA has the fleet to make it happen
-Did I forget to say 52 777s?
-Hubs in the other two key destinations for the finance industry (ORD and SFO) and energy industry (IAD)
-Positioning LAX needs to provide the feed to make Mic connected to the domestic market: right now CO flies to Bali and Cairns but we can't get to Guam.

I see the minor, domestic-focused, hubs (CLE and DEN) suffering the most in any merger. AA and WN are the two key competitors for either airline and together I believe that UA and CO can offer better returns for their shareholders, a better product for their customers and a brighter future for employees than apart.
I can see one contentious point in any discussion: do we get to keep our fine, blue, carpets? Or will we all have to learn the Red Carpet shuffle?

Remember that NW owns a golden share in CO and can block some mergers.

Incorrect. They were obligated to keeping it open because they received federal funds for the airport. They got fined pretty good for this action too. That alone should be an indication of the 'illegality'.