On the verge of number one

worlddomination.jpgBy now all of us have heard that 3 May appears to be the day that Continental and United could announce a merger that would make the combined entity the largest airline in the world.

We can leave it to the pundits to hash out it the advantages of this tie-up outweigh the disadvantages.

But here’s an excerpt of an Airline Business interview with Continental’s CEO Jeff Smisek from about eight months ago before he officially became the airline’s chief. His gives insight into his view of airline mergers, and a sense of relief that Continental walked away from meger talks with United in 2008.

Offering his assessment of a potential merger between Continental and United Smisek says many facets were involved, “including financial issues, and if you fast-forward from April 2008 to what happened in September, the financial markets did not exactly improve, so we were particularly right in making that call”.

Smisek also cautions it is still a case of early returns on the Delta-Northwest merger. “We will see how they do. That was going to be a merger of addition that seems to be now pretty much a merger of subtraction from what I can tell, but part of that of course is the recession.”

Yet if the Delta-Northwest merger is successful Smisek believes “everyone in the business, including us, needs to be thoughtful and responsive. I think the jury is out on that [the merger]. But we will watch it very closely.”

While Smisek expects to realise a number of revenue synergies and cost savings from Star membership, he concedes that a merger can deliver greater benefits in those areas. However, through an alliance, carriers avoid significant integration costs, and more importantly, “you do not have to integrate your people and you do not have to integrate your cultures”.

Merger mania here in the USA began its fervor on 7 April when someone with knowledge of talks between United and US Airways leaked the negotiations to the non-aviation DealBook blog featured in The New York Times.

Kudos to TheStreet.Com’s Ted Reed. At the recent US Airways media day he asked carrier chief Doug Parker point blank why US Airways couldn’t better manage the process of disclosing merger talks.

Reed expressed a frustration, which I fully and completely understand, that this type of news is always leaked by investment bankers to non-aviation journalists or media outlets.

Parker’s response to Reed was: “We didn’t leak anything and I don’t know who did.” Parker says the talks occured for quite a while before the leak was sprung. Giving a refreshing and frank assessment of the leak Parker concludes: “I can’t control people who don’t work for us.”

Parker also joked that crafting US Airways’ announcement that talks with United had broken off took a little creativity since the carrier never announced discussions with United in the first place.

So possibly it will soon be the big 4 US carriers. Let’s hope consolidation produces the desired outcome.  (photo credit minibran.worldpress.com)  



One Response to On the verge of number one

  1. kevin 3 May, 2010 at 3:24 am #


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