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Airlines Merger Analysis, Continental Airlines and United Airlines
A Wall Street analyst expects Continental Airlines to bid to acquire United Airlines, after reports that United and US Airways were in merger talks.
Stifel Nicolaus airline analyst Hunter Keay said in a client note Monday that a United-US Airways merger is “a suboptimal scenario” because of pilot labor issues, revenue risks, and “problems with regulatory review due to higher domestic overlap” on routes United and US Airways have in common.
“We expect Continental to respond to reported United-US Airways merger plans with a bid for United,” Keay wrote, “partly as a defensive maneuver. . . .We expect Continental to respond relatively quickly.” Keay said he had no knowledge of merger negotiations or discussions between Continental and United.
Industry observers acknowledge that Continental is a better match for United. “But it takes two to agree,” said aviation consultant Robert W. Mann, of Port Washington, N.Y.
Continental and United discussed merging in 2008, until Continental walked away.
A combined United-Continental would create the world’s largest airline, ahead of Delta Air Lines, now the largest after acquiring Northwest Airlines in 2008. A combined US Airways-United would be the second-biggest U.S. carrier. Delta and Air France-KLM are larger worldwide.
Continental’s strong presence in New York and in Pacific markets would complement United, said Gimme Credit L.L.C. bond analyst Vicki Bryan in a client note. A United-Continental combination “could generate nearly $2 billion in revenue and cost savings, perhaps twice the benefits” of a United-US Airways merger, she wrote.
Continental has more cash – $2.9 billion – vs. US Airways’ $1.3 billion and “stronger free cash flow as a percentage of revenue, and slightly lower leverage,” Bryan said.
Keay said a United-US Airways merger would “seriously jeopardize” the joint ventures Continental and United had been pursuing to coordinate on scheduling and pricing.
A United-Continental merger would face less regulatory scrutiny because the carriers have fewer overlapping city pairs – nine, whereas United and US Airways have 14.
Keay said that, in a United-US Airways merger, proposed service or job reductions at Philadelphia International Airport “would be met with pushback” by politicians, possibly including U.S. Sen. Arlen Specter (D., Pa.), who protested when US Airways closed its Pittsburgh hub in 2006.
“We see potential political and/or legal issues with the handling of US Airways’ Philadelphia hub, given the relatively close proximity to United’s Washington Dulles hub,” Keay wrote.
“We see a high likelihood of forced asset divestitures at Philadelphia or Dulles, and Phoenix or San Francisco, given hub redundancy.”
Gimme Credit’s Bryan noted, “US Airways lacks the rich appeal of new markets.”
United and US Airways’ overlapping markets – such as Washington – could result in reduced market share “if the combined carrier was required to sell common slots, for example, before the merger could meet regulatory approval,” Bryan said.
Most airline CEOs, including United’s Glenn Tilton and US Airways’ Doug Parker, have touted the benefits of more industry consolidation.
In 2002, Tilton was recruited to United, after nearly three decades in the oil industry, to turn around the troubled Chicago-based carrier. Hit by competition from low-fare carriers, United’s labor costs were among the highest in the industry. Two United passenger planes were hijacked in the Sept. 11 terror attacks.
After United filed for Chapter 11 bankruptcy reorganization, management in 2003 eked out hefty concessions from unions that saved about $2.5 billion.
“United flight attendants and pilots have been at war with the company since the restructuring,” said Mann. “It wasn’t a small haircut. These were scalpings.”
US Airways filed for bankruptcy protection twice in the last decade and was saved from liquidation in 2005 by combining with America West Airlines, of Tempe, Ariz.
Parker, with America West since 1995, became CEO of the new US Airways. Under his leadership, US Airways improved operational problems at Philadelphia International Airport – uneven baggage service, and one of the worst records for on-time flights.
Parker made an unsuccessful hostile bid for bankrupt Delta in 2006. US Airways tried to combine with United in 2008, but United walked away.
One of US Airways’ biggest unresolved headaches from its 2005 merger has been integrating its pilots and flight attendants, which are split on seniority lines – with more-senior crews employed by the old US Airways and less-senior personnel working for the former America West.
“US Airways hasn’t been able to run one airline,” said Mann. “They still operate on two separate contracts. They still fly on two separate fleets.”
If United and US Airways merge, seniority integration of the workforces will have to be resolved. Management has to be “willing to pay to play,” Mann said.
“I think they could convince people who are today opposed to a merger to participate. They are going to have to share the economics,” Mann said. “If they try to do it cheap, chances are they’ll have a lot of resistance.”
Shenzhen Airport Customs Provides Good Services , Buiding Bridge For Cross-Strait Flight
The press was informed from Shenzhen Customs that since December 15, 2008 when Shenzhen Baoan International Airport opened the cross-strait line, the business of the flight has been keeping a stable improvement, market becoming maturing , business maintaining a sustained growth and the number of entry-exit visitors increasing month by month. By the July 31,2009 Shenzhen Airport customs , which is subordinnated to Shenzhen Customs Office, has inspected over entry and exit flights for 675 sorties, 139 ,000 travellers and 5,200 crew.
It is reported that since the Shenzhen international aiport terminal transferred to a new place, this customs scene process of the new terminal was replanned, which made the channel for travellers more scientific and huamanized. The customs rationally deploy human resources, enhance on-site inspection and improve the efficiency of customs clearance; in order to raise the awareness of customs law , the customs strenghthen the publicity of customs laws and regulations by releasing the customs paperwork to entry-exit travellers, making sure an orderly clearance order.
There are four airlines running direct flight business ,which are China Airline with two branches(the China Airlines, Huaxin), EVA airline with two branches(EVA and LiRong) ,Shenzhen Airline and China Southern Airline. With the deepeningof cross-straight economical and trading activities and improvement of customs service, the market of cross-strait flight is promising, and it is also expected that new cross-strait travellers will be brought to Shenzhen Airport.
American Eagle Airlines Begin Flight Service Between O’Hare International Airport and Tri-Cities Regional Airport
American Eagle Airlines, the regional affiliate of American Airlines, will begin nonstop jet service between Chicago O’Hare International Airport (ORD) and Tri-Cities Regional Airport (TRI) beginning July 2. The Tri-Cities airport is centrally located between the cities of Bristol, Kingsport and Johnson City, Tenn., and serves the communities of Northeast Tennessee, Southwest Virginia, and Western North Carolina. Eagle will operate the service with 44-seat Embraer ERJ-140 jets.
“American Airlines was the first carrier to operate at Tri-Cities Regional Airport, launching service Sept. 1, 1937, and we are delighted to bring the American brand back, with service to the Tri-Cities area from our hub in Chicago,” said Gary Foss, Vice President – Planning and Marketing for the AA Regional Network. “From the Birthplace of Country Music to NASCAR racing at the Bristol Motor Speedway, the Tri-Cities area has a tremendous amount to offer. With these new flights to Chicago – one of American’s premier international gateways – local business travelers will have convenient connections to the West Coast as well as destinations throughout American’s global network.”
Known as ‘America’s First Frontier,’ the Tri-Cities area also boasts numerous historic sites and a rich heritage forged by America’s first settlers.
“American Eagle’s new commercial airline service in Tri-Cities will bring even more business to East Tennessee,” said U.S. Senator Lamar Alexander (R-Tenn.). “This connection to a big commercial center like Chicago makes sense and will help create jobs and grow the economy in the region.”
“New air service from the Tri-Cities to Chicago will be a big plus for the region and the local economy,” said U.S. Senator Bob Corker (R-Tenn.).
“I am pleased that American Airlines will now offer direct flights from Tri-Cities Regional Airport to Chicago,” said Rep. Phil Roe (R-Tenn.). “This new opportunity will directly impact accessibility, strengthen our economy, and influence development.”
“The Airport Commission is pleased to be able to work with American Airlines on providing direct service to their Chicago O’Hare hub from Tri-Cities Regional Airport,” said Ken Maness, Chairman, Tri-Cities Airport Commission. “The connections available in Chicago will give travelers many new opportunities for national and international destinations.”
Airline Flight Service Cut Seat Capacity
Delta Air Lines Inc., trimming costs because of a “global economic recession,” said it will cut seating capacity by as much as 8 percent in 2009 and eliminate an unspecified number of jobs.
Domestic capacity at the world’s largest carrier will be pared by as much as 10 percent and international flying by up to 5 percent compared with 2008. The 75,000-person payroll will fall as a result, Delta said today in a regulatory filing.
The cuts extend this year’s second-half pullback in U.S. flying of at least 10 percent at each of the biggest carriers as economic growth slows. Atlanta-based Delta said the new projections take into account the year-over-year impact of the previous retrenchment.
“We have seen a fairly significant dropoff in demand, starting in October,” President Ed Bastian said on a Webcast of a Credit Suisse Group AG airline conference in New York. “The revenue environment is as cloudy as it’s ever been. We’ve never seen the level of demand destruction that some are forecasting for our business.”
Delta will offer “voluntary programs” to shrink its workforce as it reduces flying, Bastian and Chief Executive Officer Richard Anderson told employees in a memo. A spokeswoman, Betsy Talton, said no details were available.
Buyouts allowed Delta to cut 4,000 jobs this year, or about 7.3 percent of its total before buying Northwest Airlines Corp. in October. That was double the number of reductions it initially targeted. Northwest eliminated 2,500 jobs, or 8.1 percent of its payroll.
Shares Gain
Delta rose 14 cents, or 1.8 percent, to $8.10 at 9:31 a.m. in New York Stock Exchange composite trading. The shares fell 47 percent this year before today.
The total seating-capacity cuts will be in a range of 6 percent to 8 percent, Delta said. Reducing the number of available seats helps airlines improve unit revenue, or revenue for each seat flown a mile.
While industrywide unit revenue historically hasn’t dropped by more than 2 or 3 percentage points in any year, Delta is “anticipating obviously a much greater degree of revenue leaving the industry on a short-term basis,” Bastian said.
Automotive customers have slashed travel budgets, while the pharmaceutical and energy industries have been resilient, he said.
“These economic hurdles are difficult, and we remain committed to building our company on a durable financial foundation,” Bastian and Anderson said in the memo.
Delta said it will end this year with about $5.6 billion in cash, including $1.1 billion in collateral it must put up to cover fuel hedges. If crude oil prices remain around $50 a barrel, Delta would have a $5 billion benefit in 2009, Bastian said.
Wisconsin Airport, La Crosse Receives FAA Safety Award
La Crosse Municipal Airport (KLSE) in Wisconsin has been recognized as one of the safest airports in the region, and airport and La Crosse city officials received the FAA’s Airport Safety Award for 2008. The award is bestowed upon one airport in the Great Lakes region each year, with 95 commercial airports competing for the honor.
Both Northwest Airlines and American Airlines offer 10 flights daily from La Crosse, and airport Manager Dan Wruck said that the award is a reflection of the airport’s ongoing commitment to safety, including the recent contstruction of a second runway. Officials agreed with Wruck, and said that the renovation cleared up the confusion previously experienced by pilots, thereby increasing their operational capabilities.
source : charterx.com
