More merger SPECULATION

Dec 13th, 2006, 07:51 AM
  #1  
mjz
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More merger SPECULATION

http://www.msnbc.msn.com/id/16183725/

I wonder how much money is spent and resources wasted trying to put these deals together?
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Dec 13th, 2006, 11:26 AM
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Goldman Sachs just reported annual income of $9.34 Billion - that's a $622,000. "bonus" for each eligible employee.
M
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Dec 13th, 2006, 11:38 AM
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It is not "waste". There are simply too many legacy carriers in the US market competing for the same customers with more or less the same product.

3 main players are about right. Right now, there are 6.

Even in the low-cost segment, AirTran is proposing to buy Midwest.

In Europe, two of the largest carriers - AF and KL - already combined a few years ago.

It is something that needs to happen. Just a matter of when and how. And which pairings. If US and DL combined, then then UA/CO and AA/NW basically have to happen.

BTW, I'm not saying it's good for customers. In fact, all these consolidations will be VERY BAD for them.
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Dec 13th, 2006, 03:58 PM
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Consolidations can benefit the consumer, so I can't see how the consolidations prophesied must necessarily be bad. Certainly unregulated monopolies are usually bad for the consumer, but a severely fragmented market can also be bad, as some cities are often at the mercy of a single airline; a consolidation that improved their access would almost certainly be beneficial.

There can also be economies of scale by consolidating functions, which should benefit all but the people who lose jobs.

I'm a frequent flyer on Continental and they lack good coverage of the west coast; a consolidation could solve that.

I usually fly Cleveland to San Diego via Houston, very economically. Once I wanted to stop to see an exhibition in Las Vegas. Continental's solution was to fly from Cleveland to Las Vegas, then to Seattle, and on to San Diego. It was not convenient nor economical. Not that I will ever want to go to Las Vegas again, but a merger that would give Continental flyers more flexibility on the west coast would, in my opinion, be very beneficial.
clevelandbrown is offline  
Dec 13th, 2006, 04:06 PM
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clevelandbrown - I for one won't mind a UA/CO merger as that will give me much more flights to Asia using Onepass miles.

But I was actually thinking about people like yourself. Probably the first thing a merged UA/CO will do is to shut down or dramatically scale back CLE.
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Dec 13th, 2006, 04:23 PM
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This is probably more appropriate for the flyertalk forum, but I have never understood the advantage of being called a hub. The only direct flights we have ever gotten out of CLE have been seasonal, so for practical purposes we may as well not be a hub. Since the planes are always crowded, I would be surprised if they cut the number of flights; if they do, there are always other carriers. As far as losing some jobs, the politicos have driven every other industry out of Cleveland; why keep this one?
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Dec 13th, 2006, 04:58 PM
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What? You don't appreciate the 5 daily non-stops to Buffalo or 4 daily flights to Erie, PA?

Well, you guys do get around 4 non-stops to LAS and 3 to LAX. But if CO shut the hub, WN probably will fill in the void. So, you do have a point. The 2008 CLE-CDG that has been announced will not happen, though.
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Dec 14th, 2006, 02:06 PM
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And now a buzz in the UK financial circles is that Emirates is looking (again) at gobbling BA, probably using a UK-based investment consortium in order to get around UK foreign-ownership limitations.
Gardyloo is online now  
Dec 14th, 2006, 02:53 PM
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I heard this described as the "Walmart-ization of the airline industry" - cheap and dirty.
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Mar 16th, 2007, 06:20 AM
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And AirTran keeps extending their hostile offer for Midwest. Wish AirTran would work on improving their own operation instead of trying to spoil a good one.

Keith
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Mar 16th, 2007, 06:34 AM
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I don't know why the forum's resident "experts" on airline practice and policy always have to be the first few responders to this post, except perhaps that their politics are similar, and, like the airlines, they view air travel entirely from the point of view of return on investment rather than a service industry. These mergers have not one thing to do with better serving the traveling public, obviously. If one or another market happens to be better served by a merger, it's purely accidental.

The logical extension of merger/acquisition fever is centralization -- monopoly is only different from nationalization in that the central power is held by a handful of private, very wealthy citizens instead of a government that may or may not be elected. Bureaucracy is bureaucracy, either way, and responsiveness to the market goes by the wayside.

Every time two airlines merge, gates are closed at someone's airport, routes are consolidated, and service changes usually in favor of hub-and-spoke systems that make travel from any airport other than a hub just miserable.

But there are those who continue to accrue wealth, and -- as OP suggests -- the brokers do well whether the merger goes through or not.
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Mar 17th, 2007, 02:11 AM
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Soccr, I think you need to do some research on what a service industry is, which is commonly described as a for-profit industry that provides services, rather than, for example, manufactured goods.

Typical service businesses would include legal and accounting firms, which are in business to make money by providing a service, and which disappear when they are no longer profitable. You are off base when you posit that the airlines, as service businesses, are not driven by a profit motive.

One suspects that you are describing charitable or governmental entities, which, for the most part, are not driven by the profit motive, but I cannot think of an airline that fits in that category, or at least an airline that serves the public.

As to the investment bankers, I think they are useful in the same way a highly paid executive is. A company can stumble along trying to sell a business, but if the best offer is a million dollars, and an investment banker can get you a hundred-fifty million dollars (plus handle all the regulatory paperwork) it makes eminent sense to pay the investment banker ten or fifteen million dollars, as you come out ahead.

The problem is that we workers don't provide the services needed to make the millions and billions of dollar deals, so we don't get paid accordingly, and it seems unfair to us that some people make that kind of money.


clevelandbrown is offline  
Mar 17th, 2007, 06:14 AM
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Soccr, most of the industry as we see it today was created through mergers and acquisitions. Look at United, Delta, USAir ... all of them are amalgamations of small local and regional carriers.

Or try to imagine the industry if there were no mergers at all. Why getting from NY to LA would be three or four flights on different airlines with no automatic baggage transfer, all with separate tickets, and no smooth connections. Yuck ... give me consolidation any day.
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Mar 17th, 2007, 07:18 AM
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Oh for pete's sake -- of course I know that provision of service is as contrasted with provision of goods. But just as the "goods" are -- theoretically in a free-market system -- supposed to be made as good as possible to entice purchase, "services" should -- again theoretically -- serve the consumer, and competition should make the service better, not worse.

The issue here is that our version of a free-market system -- which, by the way, most on both sides of the aisle will admit is not truly free, although they'll differ on what makes it not free -- has come to serve shareholders rather than consumers.

As for differentials in pay: "The problem is that we workers don't provide the services needed to make the millions and billions of dollar deals, so we don't get paid accordingly. . ."

1. Brokers, lawyers, etc. would have no companies to play with were it not for the workers who make the companies run, or, for that matter, the consumers. It's probably the only part of the "social contract" where being outnumbered is an advantage.

2. The orders of magnitude in the difference between upper and lower levels of pay are so drastically, illogically out of whack that even traditional conservatives are questioning the structure. The idea that their services are 10,000 - 100,000 + times more valuable is just ludricrous, elitist, and obviously their own idea. Those who believe capitalism is a system that should include ethics and social responsibility as well as the profit motive can only shake their heads.
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Mar 17th, 2007, 08:24 AM
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Isn't capatilism beautiful?

The same worker that's at the bottom of the barrel can make an investment in hers/his work and possibly make some money.

I'll take that any day.........

YMMV!
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Mar 17th, 2007, 12:37 PM
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"The same worker that's at the bottom of the barrel can make an investment in hers/his work and possibly make some money."

Or lose every last dime of hers/his retirement....
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Mar 17th, 2007, 01:31 PM
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so what's your suggestion???

socialism...we all share and we hardly get anything?

As I said, I will take my chances with capitalism* anytime... YMMV!

*an economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations, esp. as contrasted to cooperatively or state-owned means of wealth.

AAFrequentFlyer is offline  
Mar 18th, 2007, 09:40 AM
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You don't REALLY want to trot out all the old tired arguments, do you? Don't forget, "it's not a perfect system, but it's the best we've got." There's also: "look at which system has had the greatest success..." to which I point out that you mean success 1) in economic terms and 2)for those get the wealth. Its success over the long haul, in more global, ethical, and social terms, for those on whose backs it runs, is questionable. I suggest that the high-roller frequent-flyer conservatives here are among the beneficiaries of the arrangement, so of course they're going to sing its praises.

You can define capitalism in some pure, theoretical form, in all kinds of ways, while the reality is that capitalism as practiced in America is different from what it looks like in other cultures; moreover, American capitalism as practiced a century ago was different from what it is now. What we currently have is (as most other systems eventually have) an arrangement that allows the wealthy powerful to do pretty much what they want to do and then sell it to the unpowerful by calling the system some attractive and rallying name.

But just for the record, you are -- as so many conservatives love to do -- confusing socialism with communism, using the terms interchangeably and lobbing them like grenades to imply lack of patriotism or even moral fiber. To be clear: Communism disallows private ownership, which does mean 'we all share' and in the former Soviet bloc meant 'we all' got nothing unless 'we' were the wealthy powerful. Socialism allows private ownership and allows for the existence of a free market for things that are not part of the basic utilities needed by 100% of the population.

It's interesting to go to Sweden where people are mystified by the government-phobia in American rhetoric. They say what amounts to "the government is 'us' -- we elected it and it is responsible to us -- and as such it is our friend: it protects our freedoms and provides for the universal essentials, otherwise leaving us alone to lead our own privatelives."

I'm sure that's your cue to talk about corruption, but you can't possibly argue that capitalism doesn't produce corruption itself, and when it does, the rewards to the corrupt are SO much greater!

You could also point to high taxes in Sweden, but frankly, we are at least as heavily taxed by subsidies to private industry that show up either in pricing and fees or in higher individual taxes to make up for the lack of taxation of corporations. The percent of revenue coming from the private sector has dropped from around 40% down to less than 15% or more over the past 3-5 decades -- but the budget has increased exponentially. So who's paying for that?

Rational men may disagree, and since the whole idea of capitalism depends on the "rational man" theory, you'd best assume rationality on everyone's part here. After all, there's such a thing as the "marketplace of ideas," too.
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Mar 18th, 2007, 11:57 AM
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Six main players in the U.S. is a good thing. Seven or eight would be even better.

Any benefit of economy of scale by consolidation would go to the bottom line. Lack of or lesser competition is no incentive to any business to drop prices. The amount of service would drop and prices would probably increase.

Maybe airline consolidation in the early days helped create economies of scale in putting together profitable transcontinental routes. I don't know the history of commercial aviation, but if the movie The Aviator was close to reality then wasn't it competition, and better aircraft technology, that brought about transcon travel? The profit motive drove the competition between TWA and Pan Am.

In any case, where there is a market for transcon air travel and the technology exists to provide it profitably then somebody is going to offer it for sale. And others will then compete for it, maybe getting to a competitive level by consolidation. But that kind of consolidation provides a new product for new revenue and profit. The point of the current consolidation is aimed at reducing competition.

clevelandbrown, you mentioned that there are "always other carriers". Yes, there are now, and expect that it was possible on another carrier for you to fly to LAS nonstop, continue nonstop to SAN, and back in one stop to CLE.

You mention that because the flights are always full you doubt that consolidation would result in an airline reducing their number of flights. Of course it will. Just because a plane is full doesn't mean that it is profitable, or at least it may not be profitable enough given the investment in the operating costs. The can raise prices so that their profit margin is much higher.

I have no problem with the investment bankers or whoever making as much as their clients are willing to pay.

I am also not going to shed a tear for the investors in airlines companies that lost $40 billion since 2001.
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Mar 18th, 2007, 12:53 PM
  #20  
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Can you shed a tear or two for those who now have such limited choice of service to their city that the fares are exorbitant and the schedules absurd? Theoretically, non-hub or secondary-hub cities (Pittsburgh, Charlotte, e.g.) should form a market niche that an enterprising airline will discover, but it just doesn't happen.

For what it's worth, it always unnerves me to see the TWA logos on the galleys of the AA MD80s... ghosts of mergers past and the variety of consequences.
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