CO should take whatever strategic initiatives are necessary to further its business. If that means leaving quietly, so be it. If it means throwing a fuss to get concessions from NW, DL or both, then they should leave no stone unturned.

And the other airlines will do this no matter what. CO would do this, even if they were trying to merge with UA, making silly claims about how their merger would be "different." At the end of the day, I don't think these claims make a lick of difference and the regulators will either hold it up or they won't.

I'm not saying that the merger will sail through, or that it will be decided on its merits. But I think that what CO has to say about it will have so little impact, that only a fool would pay them anything to keep quiet. Let them kick and scream.

They would grab which ST members? The all-important Copa? Seriously, all the Euro carriers are in the AF/KL/NW/DL camp. KE has a closer relationship with DL than anyone. And the rest of them don't matter. CO has zero ability to somehow disrupt ST.

As for the damaging competitive responses, I think the scale of the others vis-a-vis CO means that it would be CO that would come out with the bloody nose, not the other way around.

If DL is overly concerned about CO's "competitive response", they aren't showing it. Their new website has this as a rationale for the merger:

I think the battle is on. And I am confident that CO's first move will not be to merge with AS. They may end up there, but it would be a desperation move if they get the cold shoulder from UA.

Well if they are trying to get concessions then they are trying to "get something for nothing." I'm going to make a crude analogy to an ongoing transaction I am involved in here in Omaha. We had a piece of farm 50 acre farm land about 50 miles outside of the city that had been in the family for over 100 years. Eventually you reach a point in a partnership like this where the land has become diluted to far.

So the family decided to have the company that manages the land auction it off. A week before the auction the company approaches us and said they did a title search on the land and an easement issue (access to the land from the nearest road) came up. We decided to proceed to auction anyway. This was likely a mistake on our part, but the land management company blew it bigger by not running the title search sooner (they had 6+ months to get ready for this). Anyways this auction was in November, the sale still hasn't finalized because of the easement issues.

A survey was done and showed an easement for .01 acres would be needed from either one of two bordering neighbors. Easements are easy to get in court, especially one this small, but obviously that is the last resort. Both neighbors were approached and offered $500 for the easement, nearly 10 X more than the land is worthed based off of the inflated sale price for the main farm. A more than fair offer and both declined. Now both have lawyers and both get to meet my lawyer in court for a judgement that will give me an easement and give one of them about $50 (maybe enough to cover 25 minutes for their attorney). They were holding out for more money and trying to get something for nothing and it will come back to bite them.

Essentially, that is what CO would be doing by trying to get something for leaving skyteam. With the revenue sharing agreement in place it is clear that CO is the odd man out even if there are on mergers and especially if a DL/NW merger goes through. Those guys are under no obligation to gave CO anything. CO should be happy it is no longer bound by NW and bound to Skyteam and move on. I fail to see any scenario where it is CO's best interest to "make a fuss."

I think people are confusing 3 different things.

An alliance is not the same as a joint venture, and a JV is not the same as a single corporate entity.

If CO don't merge with a non-ST carrier, it would be perfectly reasonable for them to remain in the alliance while not taking part in the joint venture. There are plenty of competing airlines in the same alliance. For example, there is no love lost between BA and CX on the cash cow HKG-LHR route (flights at similar times and all), and they're actually competing on a host of city pairs between Europe and the Far East. Similarly, there's TG and SQ in *A who are essentially arch-rivals at all levels. Heck, the route structures of OS and LX have an awful lot of overlap (I'm referring to connecting pax here), and they even share the same FFP! We haven't seen that in Skyteam only because some Russians bought Malev and decided that they'd prefer to grow it into a premier carrier within the leading quality alliance :rolleyes: instead of being a ST associate under CSA.

To sum up, there is no reason why competing airlines can't share an alliance. The addition of COPA brought a fair few new destinations to the Skyteam map, and CO's EWR hub boosts pax numbers for the European carriers either sending planes to Newark (a big O&D airport on its own right) or getting CO service into their own hubs.

The suggestion that DL would tell CO that they aren't needed in Skyteam anymore is beyond ridiculous (there are a lot more members in ST and all of them need to have a say on such an important issue), and the notion that CO would get a few planes as a "parting present" is also totally out of touch with this planet!

I don't think people are confusing the three.
An alliance still requires cooperation between members. This of course can be on varying levels. I just feel the trans-Atlantic joint venture changes the tone of things. I think it is hard to argue that Continental isn't the odd man out now. Obviously they will do what they feel is best for the company, but I have a feeling that means switching alliances. This doesn't mean I don't understand the difference between a joint venture and an alliance.
This I will agree with you on.

Don't forget that the second biggest European Skyteam carrier is also out of the JV. Would you class Aeroflot as "the second odd man out" or what? Of course, to take the analogy further, SU don't have a hub at Orly with a lot of flights to the same destinations as AF but by God they're a massive airline with a lot of connections to oil-rich places, ones that have traffic to both NYC and IAH as well as other parts of S. USA and Lat Am like CCS.
Again, my assessment is that there are no gains to be made by CO leaving ST to go it alone. Neither for CO nor for anyone else within the alliance.
There could be some gains for CO if they left ST for another alliance, in which case you could argue that SAS (and perhaps bmi) would become the "odd man(/men) out" as the LHUACO JV starts offering direct flights from their hubs to compete head-to-head with their lucrative NYC services. Would that mean that SK will be forced to leave *A? Where does this all end? :confused:

Well, remember the goal outlined by my theory. It's not just to throw a fit over the DL/NW merger, or being tossed from ST - rather, it assume CO buys AS, and establishes a new int'l hub at SEA to service Asia (and perhaps Europe when the 787s show up).

In order to do this, they need NW's SEA-NRT route authority, and they need more widebodies for Europe to supplement the 777s that would need to be moved to SEA.

So, the tantrum I'm suggesting is nothing more than strategic move to coerce a route and aircraft from their former partners in order to build out a new organic growth strategy.

All of the above assumes UA decides to mate with US, which takes UA out of play.

Link
Now that change appears to be coming, Continental indicated it has entered into a confidentiality agreement with a rival, allowing the sharing of sensitive financial documents. It is considered the first formal step in the merger process.

Continental told employees Tuesday in a question-and-answer-style memo that "before today we hadn't even signed a confidentiality agreement with another airline." Neither Continental nor United would comment on the status of talks, which were put on hold when Delta's initial negotiations with Northwest stalled earlier this year.

Kellner and Smisek also said Continental will redeem the "golden share" that Northwest Airlines owns in it. Continental is allowed to buy back that share, which prohibits it from acquiring another carrier or being bought, for $100 now that Northwest has entered into a deal of its own.

Bigger yet

Many analysts expect a merger involving Continental and United because they each would be dwarfed by the new Delta. Together, Continental-United would be even bigger.
"From Continental's perspective, this does change the competitive landscape, and this is the sort of event they anticipated would change their view," aviation consultant Bob Mann said. "They've already reportedly had discussions with a number of parties, but the only one really pushing for a transaction at this point is United."

United Chief Executive Glenn Tilton on Tuesday reiterated his support for industry consolidation in a message to employees. Tilton contends the airline business, beset by record fuel prices, needs fewer players.

Continental also has had talks about a merger with American Airlines.

Darren Bush, a one-time Justice Department official who now is an associate professor of law at the University of Houston Law Center, said Continental would benefit from having any deal vetted by regulators alongside a Delta-Northwest proposal, not after.

"If Continental wants a dance partner, it better act fast," Bush said. "Afterward, the market is more concentrated."

Better chance now?

Such deals likely stand a better chance of being approved under the current administration, he said.
Rep. James Oberstar, the chairman of the House Transportation and Infrastructure Committee and a Democrat from Minnesota — which would lose Northwest's headquarters in the Delta deal — hammered the industry Tuesday and hinted at hearings.

Oberstar called the Delta-Northwest plan nothing short of "the worst development in aviation history in the aftermath of deregulation in 1978" and said it only will lead to more carriers enveloping each other, diminishing competition and making life rough on discount airlines.

"Bigness begets more bigness," Oberstar said.

Investment firm applauds

Wall Street also sounded a sour note. Delta's stock price sank nearly 13 percent Tuesday to $9.16 a share, while Northwest slipped more than 8 percent to $10.28 a share. Continental and United also took hits.
New York investment firm Pardus Capital Management — which owns about 7 million shares of Delta and about 6 million in United — has been one of the loudest cheerleaders for consolidation and kept shaking the pompoms Tuesday.

"We believe there is significant momentum behind a similar end-to-end merger of Continental/United in the coming weeks," said Karim Samii, Pardus' president and chief investment officer.

But investors have a dogfight coming if they think they're going to boost share value by shedding airline workers, said Capt. Jay Pierce, head of the local Continental pilots union.

"If a merger benefits airline executives, Wall Street financial groups and legal firms at the expense of pilots, other airline employees and the flying public, we will use all lawful means necessary to ensure the completion of that transaction is unsuccessful," Pierce said in a prepared statement.

Other unions representing workers at Continental and United said they only would support a deal that was good for employees.

"If it's not, we'll try to fight it," said Leslie Miller, a spokeswoman for the Teamsters, which represents mechanics at United.

Seeing an opportunity
The International Association of Machinists and Aerospace Workers, which represents flight attendants at Continental and ground workers at United, sees the heated merger climate as an opportunity to recruit nonunionized workers at Continental, spokesman Joseph Tiberi said.
"Our people in Newark and Houston are telling us this announcement has created even more interest among Continental's workers for a union. They don't want to go through a merger without any kind of voice," he said.

The IAM has unsuccessfully tried in the past to organize 7,600 fleet service workers and 8,000 customer and reservation service employees at Continental, but Tiberi said it will step up organization efforts.

Also Tuesday, Continental said it would review its participation in alliances it has with Northwest and Delta and the global SkyTeam, which includes other international airlines.

I'd edit the post title, as it's misleading. No where does that article state the confidentiality agreement was with United.

I hope Pardus keeps shaking their pom-poms, as it looks like both Congress and labor are poised to attack the DL/NW deal, and potentially scuttle it.

lots of truly weird thoughts here.

first, UA/US is not going to happen. UA unions will piss a fit (they want a CO merger to get rid of Tilton, etc), and US ads very little to UA at this point, little or no international heft, different aircraft types, a different business model, etc. US is their shuttle and thats about it, and the Anti-trust overlap in DC and PHX would create major problems. Plus, Parker has his hands full and has failed to integrate HP and US. the markets would dump both stocks. its a deversion folks, everyone has to talk to everyone else.

AA and AS make far more since. AA covers California AS north, you combine them and you have a network that rivals UA. AS/AA already do this with codeshares.

CO and AA? Way to big, too much market power US to Europe, a near lock on Texas region, too high of a concentration in NYC. Putting asside the regulatory issues, competatively neither gains anything coverage wise. AA has a small presence intra-california, but a merged AA/CO would have little or no West and Rocky-Mountain presence, and none of the very important Pacific Routes. The goal here is coverage, and CO/AA would not add to it, even if it were approved. Finally, neither management team would step down, no way to practically make it happen.

AS and CO? only gets them a partial West Coast coverage, coverage that is not linked to anywhere CO flies. Houston to SEA/Portland is not a huge route. Little synergy, and CO needs heft in the pacific, its not going to build it up out of SEA...

No one is going to give them planes and CO is worth 2.13 Billion last time I looked, thats about 8 772 last time I looked. Get real.... I doubt that CO even has the cash to Buy AS, and I have never heard they are interested in a stock swap, which is what is being done with DL/NW and discussed with UA/CO.

More serious, SEA is a logical hub geographically, but not realistically. the meto area is 2 million, but worse you have YVR of similar size, but no messed up customs/immegration, etc, and about 10 times the international traffic. You guys ever been up there? Huge international airport, all because Canada does not flip the bird to the rest of the world. Given the YVR competition and the small population of SEA, it can support a SEA-NRT flight, and a few to other hubs, but thats about it. Not going to be a major point to point hub, too little business traffic, and folks would rather connect in SFO (or in canada at YVR) or ORD, etc.

Finally, CO has to merge into an allance. They are not going to get into *A absent UA, Skyteam has cut them out, and no way BA/AA let them into one world. This is the hardest thing for them, they have lost their alliance, and a go it alone stratagy in Skyteam is not going to work.

CO is in a really big bind now, and UA is the only logical candidate.

What CO should have done was bid for NW, but having failed to do so, its UA or a slow slide into oblivion.....

so pessimistic. A small carrier can make it today even without an alliance.
it is all about management.

spin88 - I share your exact thoughts fully. The near-certain loss of NW has lead to a huge gap in coverage and the only carrier that can begin to fill that gap is United.

no offense, but I don't think you understand what has underpinned COs success. They offered a good product (slightly better than others) and with their tie up with NW - and reciprocal upgrades for elites - a much wider reach than CO otherwise would have had. I am out of SFO, and no way I would have ever ended up with CO absent the NW tie up and reciprocal upgrades (and AS to fill in part of the west).

I ultimately left because it just got to be too much trouble (and upgrades got harder to get) and as someone who flies 150K or more per year, I want reach. I was not getting upgraded on NW, and CO was hard. The benifits begain to go away.

I have no doubt that once DL/NW goes though that reciprocol upgrades on NW will go away, and then every elite on CO who is not out of IAH or EWR will think long and hard about staying with CO.

how many platnuims are staying with CO when all they have is coach (and probably no milage bonus) on DL/NW or AS... or everything via EWR or IAH? Speak up if this would not shake your loyalty.... Its what will happen.

Yet even if they stay in Skyteam (and no one will kick them out) being cut out of code sharing is a painful thing. E.g. now that I am with UA when I go to europe, I go via FRA. Why? Because its all set up with code shares, both airlines know my status and where I am, my bags get moved over, I have one ticket, easy to book etc. They know to take care of me when problems strike. I am going to do this everytime over going via say LHR and then going on a BMI flight. Why? Because no code share and I run the risk (even as a 1K) of getting totally shafted. We have left the land of paper tickets and travel agents who put us on multiple carriers to finish a trip.

So I seriously doubt that many non-CO folks are going to ignore the code share arrangements and fly into EWR and transfer to CO on their own, even if the fares are less, and they will likely not be. This is the real problem for CO with the new arrangement. Much like BMI is to me, CO will be invisble to them.

It is these drivers that will force CO to merge, and to announce it fast so it goes in at the same time as DL/NW.

This said, even if DL/NW were turned down, there are still problems presented by the just approved DL/NW/AF/KL deal, that will need to be addressed.

I think we will have to agree to disagree on the definition of "massive".

As best I can tell, Aeroflot has revenues in the $3b range. Compare this to AF/KLM at around $24b. Or DL at around $19b. Or NW at roughly $13b. Or CO at around $14b. Heck, AS clocks in at around $3.5b in revenue, but I guess they are a massive airline, too?

So, perhaps SU isn't the odd man out, as much as they are too small to really matter.

I don't think that the exclusion of SU means that the writing isn't on the wall for CO. It isn't so much that ST will kick CO out, it is that the combined heft of the other ST carriers will clearly be aimed at the NYC market. AF will be flying the A380 there. DL is ramping up international operations at JFK. And, the problem this presents for CO is that, as long as they remain in ST, there is one less impediment for their own pax to jump ship. For international flights, our CO pax (mostly) receives the same mileage accrual and the same (or more) elite benefits with the others that they do with CO. Of course, this goes the other way as well, but I would think that the scale of the JV will mean that CO will lose more than it gains.

The issue is that CO would seem to get little benefit from being in ST. They are better off trying to find a new alliance (or independent partnerships) that will provide them with feed and won't steal as much traffic.

The point I was making is that SU have a lot of coverage to places few other airlines fly to, and some high yield ones at that. No analogy to AS (unless ANC really is a super-premium destination) or any other regional airline on either side of the North Atlantic.



On a conceptual level, you make some decent points. Practically, however, there is no alternative (other than a UA merger). Which European full-service airlines aren't attached to an alliance? SN isn't, but they have partnerships with all OW members. What does this leave you with? Olympic and Aerosvit? KM? Belleair from Albania? Air Southwest in Bristol? Lagun Air? It's theoretically possible to imagine all of them forming an alliance, but it would be comical to say the least!! Absent a miracle that would push AB into the alliance game, RO is the only half-decent airline that's unattached, and they have a good relationship with ST and may well join at some point.
Even regional carriers like AP, A3 and VLM are aligned with one of the alliances. They aren't going to leave their reliably profitable codeshares with LH et al for the sake of a handful of EWR COnnecting pax.
Having to choose between no partnerships at all, a couple of very poor ones, or a great pan-European network is a no-brainer, even if it means that some of your pax would be somewhat more likely to use a competitor a bit more often.