The conventional wisdom for some time has been that consolidation in the industry is a necessity in the long run. It's just been a question of who and when. DL/NW/KL/AF would seem to all but push out CO from Skyteam and make a UA/CO hookup much more likely. It would also be interesting to see how AA would fare in such a shakeup.

Any specualtive analysis ought to consider the following:

1. Any merged airline will find itself rather crippled (i.e., doomed to something less than mediocrity) for the better part of a decade on account of burdensome financial and operating constraints, not to mention labor troubles (e.g., the pot is only now beginning to really boil over w/r/t US and HP pilots, even though the merger was closed two years ago).

2. The disadvantages of large-scale multi-carrier alliances may prompt some carriers to exit existing alliance arrangements. There are substantial costs associated with entry and participation within a major airline alliance, and not every airline has a significant number of customers who need access to 600+ destinations. Aer Lingus and Mexicana have already dsicovered this, and they likely won't be the only airlines -- or the largest airlines -- to reach this conclusion.

Going forward, when US gets a sizeable number of TPAC/ULR-capable aircraft on its property, the value proposition of codesharing with UA and remaining in Star Alliance will greatly decrease when a few bilateral agreements with LH, NH, BD, and SQ will realize 90% of whatever US gets from Star without all of the associated overhead.

I would imagine the current CEO of Delta knows quite alot about the inner workings of NW, which would be immensely useful in a merger. I, too, see things moving in that direction, much to my surprise.

To be honest upfront, I am a newer member here and have not read all 19 pages of this thread though I have read the last 3-4 pages that are current.

While I hope CO and its product survives what about a "lessor" merger partner like Alaska? Just for argument's sake AS has a west coast/nw USA operation, something CO is weak in, and the aircraft integration would be easy it seems. Not sure about he labour relations and such.

Just curious as to what the civilian "insiders" here thought? This is obviously very hypothetical and would mean the NW golden share would be gone.

Thanks for the discussion.

Ciao,
FH

I do wonder how long it will take before we start seeing price collusion in the TATL market and creeping extent to the domestic market.

AS would (on paper) make a lot of sense from a fleet/route perspective. It would give CO strength in the only part of the country they are really weak: the West.

Assuming NWDL... One could imagine that the rest of the carriers would want to build up to compete. If we also assume that UA is hot to perhaps liquidate its assets and return the proceeds to their investors (cash out the whole airline). MP could become an independent FFP... But COAS would want some of the china/AUS route authorities, AA might want their 757s and 777s, USHP and NWDL can take the A320's.

CO would be in a position to be fairly dominant on the west coast with a slew of new 737NGs and a large 787 fleet with hubs at SFO, LAX and SEA. For that they'd need either a breakup of United or to buy AS, or both. But they don't need a merger with United, I think it would be a mess unless they operated separately.

I suspect the domestic market will resist the effects of collusion better than the international ones due to the LCC's and their dominate pricing power position.

Overseas I do not think the LCC effect will be great in Y as it is in J through offerings like SilverJet, MaxJet, L'avation (sp?), etc. IMHO J yields between major city pairs (e.g. NYC-LON/CDG) are far more at risk than those in Y.

Industry consolidation triggered by a DL/NW merger would probably mean that CO must look to merge amicably with UA, or be the subject of a takeover. They could try to merge with a smaller carrier like Alaska, but this would still make them small potatoes compared to DL/NW, AA, and UA, and thus CO would be consigned to a marginal position in the industry if they sit out consolidation. Due to the fortress hub system, there's only so much that CO could grow if they go it alone. Sure, they'll push their TATL and long-range nonstops, but they'll be facing awfully strong competitors if they go it alone.

Yup, I think you're right. Did you see this piece in today's NYTimes about long-range LCC's: http://www.nytimes.com/2007/10/14/travel/14prac.html
I think the days of legacy carriers charging fat fares for premium cabins are numbered.

The article quotes one analyst who observes that "30 percent of travelers are quality-focused. They're willing to pay affordably higher prices for better products.” This is a point I've held for some time--there is a significant market for an upscale product if its priced reasonably (note the key word in that quote: "affordably.") The LCC's are going to meet this demand because the legacy carriers have not met it fully. The product doesn't have to be top-of-the-line. But it does have to be significantly better that the 31 in. Y that CO and others offer.

To a large extent CO is betting on J profits from long range point-to-point travel. But a go-it-alone CO could face competing with a mammoth DL/KL/AF on one hand, and a slew of LCC's on the other.

Well said - especially the part about operating the two units separately if merged.

As for AS...I don't see why CO would want AS just for the sake of a domestic west coast hub(s).

However domestic flying is required to fill those international flights and if CO could somehow acquire a west coast hub (without loosing hundreds of millions that is) with strong O/D for international flights & a logical connection point for domestic ones that I'd think it would be a win-win.

No I did not - thanks for sharing it ^
Another good point there.

I'd argue that CO to an extent is already starting to toy with this market through their R and Z fares. Granted these are targeted at leisure travelers but there it stand: affordable J travel.

If scheduling is the major factor for high J customers than CO also seems to be on the right path through offering n/s flights from the US. Likewise if CO can offer a respectable product, albeit below the likes of SQ/BA/CX, and also offer R/Z fares than one would think they'd be able to make a serious bid for both the high J passengers as well as the low ones too.

(The high J customers would trade a top of the line product for a decent one if the connection times are right and CO can continue to compete on price for low J customers as BF’s costs are in line to accommodate R/Z fares.)

The risk is for them - as it is for all the legacies - is having to apply the R/Z fares to compete for high J customers due to pressure from the J discounters. Currently the legacies are able to discriminate between these two groups as R/Z fares are almost the polar opposite of flexible but again, discounters threaten the legacies ability to carry out price discrimination as presumably a simpler, cheaper fare structure will be offered.

Hopefully CO's stragety of serving secondary markets directly will help insulate them should this trend ever occur in the primary ones.

This was discussed very specifically at the DO and Larry said that it was way over-priced for what CO would get out of it. It also would still leave them as the 4th largest US-based carrier, I believe (or whatever position they're in now), so it wouldn't actually be a ground-breaking merger, though it would (eventually) likely be beneficial for CO fliers once the integration issues subside.

I think one thing to keep in mind in all this is to note the recent example of US and HP as one possibility of what merger-mania could result in. Not everything works as well as the NW/KL partnership and AF/KL seem to still be operating quite independently.

I forgot to mention that bit (AS being overpriced) but it is.... its way overpriced especially given its limited network.

The other thing with UA.. is that they don't have pensions anymore! and CO employees do, so just imagine the mess created integrating that... OUCH!

The preferable route would be the breakup of UA to pay its backers... I don't think it would happen but it would open up the west a bit.

I agree with what JEdward said about AS being domestic only, if they had the feed CO could then have enough in place to do int'l service (LAX-TLV, LAX-LON, LAX/SFO-asia, SEA-NRT/PVG, etc.)

As a West Coast CO flyer, I'd love to see CO/AS. However, AS has much stronger ties to AA with code-shares, etc. and that may preclude a CO/AS combination.