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Delta makes $17 billion deal
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Confused | 5:48 a.m. April 15, 2008
How can Delta make a 17 billion dollar deal when they just came out of
bankruptcy? Doesn't that make a mockery of it?
Clarity to Confused | 7:33 a.m. April 15, 2008
This is a merger meaning that Delta will allow Northwest shareholders to
exchange their Northwest shares for Delta shares at a ratio based on the
valuation of Northwest. In other words, Delta doesn't need to pay cash for
Northwest (in a simple explanation that might not be exact since I haven't
read the merger agreement) it simply issues new shares to NW shareholders in
exchange for the assets of NW. Since they are not actually "paying"
anything for this it does not make a mockery of the bankruptcy.
The question is why merge? The idea here is that the new merged airline will be able to eliminate some of the redundant expenses that 2 airlines would have while keeping the same number of paying customers. I am not saying that is what will happen, just explaining the theory.
The question is why merge? The idea here is that the new merged airline will be able to eliminate some of the redundant expenses that 2 airlines would have while keeping the same number of paying customers. I am not saying that is what will happen, just explaining the theory.
Clarity to Clarity | 8:59 a.m. April 15, 2008
Thanks for clearing some things up to our friend Confused. Now allow me to
clear some things up for you:
Why merge? It's not really about reducing redundant expenses - those redundant expenses are a literal drop in the financial bucket when you look at the overall picture.
The real reason for the merger is simple: Eliminating competition. By joining forces, Delta and Northwest no longer have to fight against each other. Any time competition is reduced in any industry, prices go up. Look at every big airline merger in history - they have ALL been followed by major fare hikes.
If you thought air travel was getting expensive, you haven't seen anything yet.
In any other era this merger would be rejected by the government on anti-trust grounds. But in a Bush government I'm sure it will be quickly pushed through.
In the meantime, somebody remind me where the train station is?
Why merge? It's not really about reducing redundant expenses - those redundant expenses are a literal drop in the financial bucket when you look at the overall picture.
The real reason for the merger is simple: Eliminating competition. By joining forces, Delta and Northwest no longer have to fight against each other. Any time competition is reduced in any industry, prices go up. Look at every big airline merger in history - they have ALL been followed by major fare hikes.
If you thought air travel was getting expensive, you haven't seen anything yet.
In any other era this merger would be rejected by the government on anti-trust grounds. But in a Bush government I'm sure it will be quickly pushed through.
In the meantime, somebody remind me where the train station is?
Comments continue below
Re: Clarity | 9:35 a.m. April 15, 2008
A very nicely, well thought out explanation. Thank you.
I also disagree with Clarity to Clarity. Undoubtedly, the merger will effect some prices, however in the major cities there is still plenty of competition. And perhaps, just perhaps this is what is "fair" to pay for airline travel. I can't think of too many industries in which NONE (okay Southwest is the exception) make any money. I am definitely not pro-airline, but I am pro-not-having-to-provide-US-bailout-money-to-private-companies.
I also disagree with Clarity to Clarity. Undoubtedly, the merger will effect some prices, however in the major cities there is still plenty of competition. And perhaps, just perhaps this is what is "fair" to pay for airline travel. I can't think of too many industries in which NONE (okay Southwest is the exception) make any money. I am definitely not pro-airline, but I am pro-not-having-to-provide-US-bailout-money-to-private-companies.
Greg W. | 9:48 a.m. April 15, 2008
Perfect Storm brewing. One of the reasons many current companies are in trouble
financially is that of the burdens unions put on the companies. Do the airline
pilots really need a union?
so let's unionize and raise prices. sounds like a winning hand to me. Look for the losses to continue. Then they will merge with.....?
so let's unionize and raise prices. sounds like a winning hand to me. Look for the losses to continue. Then they will merge with.....?
Clarity for Clarity | 9:54 a.m. April 15, 2008
Wow, there's well-thought-out explaination at 9:35. I'll summarize to
save the rest of you from having to read it.
Basically it says we can't consider the inevitable fare hikes from this merger to be actual price increases because the higher prices are only representing "what's fair." That's some logic.
Again, I ask: Name me an airline merger that benefitted the public. Name me an airline merger that resulted in lower fares. Just one. Name me a single one. Yeah, I didn't think you could because there hasn't been one.
I'm happy for the Delta employees that get to keep their jobs - I really am. But I'm not happy for the 99.9999% that don't work for Delta because travelling just got a whole lot more expensive for you.
Basically it says we can't consider the inevitable fare hikes from this merger to be actual price increases because the higher prices are only representing "what's fair." That's some logic.
Again, I ask: Name me an airline merger that benefitted the public. Name me an airline merger that resulted in lower fares. Just one. Name me a single one. Yeah, I didn't think you could because there hasn't been one.
I'm happy for the Delta employees that get to keep their jobs - I really am. But I'm not happy for the 99.9999% that don't work for Delta because travelling just got a whole lot more expensive for you.
Change the Biz Model | 10:09 a.m. April 15, 2008
Hub and spoke just does not work. Southwest makes money because everyone can go
directly from one city to another without having to go to Atlanta or
Minneapolis.
Having lived abroad 10 years and using Delta, we are limited by what is available to Atlanta and NYC (avoid like the plague). Now there are one or two more hubs. Ridiculous.
I hope Open Skies means we can someday go from Amsterdam or Munich to any number of US cities. If these guys are serious about expanding international destinations, then let's see it.
Having lived abroad 10 years and using Delta, we are limited by what is available to Atlanta and NYC (avoid like the plague). Now there are one or two more hubs. Ridiculous.
I hope Open Skies means we can someday go from Amsterdam or Munich to any number of US cities. If these guys are serious about expanding international destinations, then let's see it.
Re: Clarity | 10:11 a.m. April 15, 2008
Your arguement for the measure of a good merger holds no logic. By your
definition a merger is only good if it results in a benefit to the consumers?
Not surprisingly, that isn't why any companies merge.
I would also task you to show me the academic research that shows the fare price change post merger? You are undoubtedly using personal anecdotes. If you want to define benefit as not having to pay multiple billions of US tax dollars preventing the airlines from collapsing, yes this merger may benefit the public.
I throw the question back at you. Name one industry in which EVERY competitor loses money but yet somehow they can find it in their compassion to give lower prices to consumers? the only one I can think of is Charity or Government.
Let also go back to basic economics. Lets assume airliens are free and open competition or even a oligopoly. Entity doesn't make money, so entity raises prices. People that don't want to pay, don't.
I would also task you to show me the academic research that shows the fare price change post merger? You are undoubtedly using personal anecdotes. If you want to define benefit as not having to pay multiple billions of US tax dollars preventing the airlines from collapsing, yes this merger may benefit the public.
I throw the question back at you. Name one industry in which EVERY competitor loses money but yet somehow they can find it in their compassion to give lower prices to consumers? the only one I can think of is Charity or Government.
Let also go back to basic economics. Lets assume airliens are free and open competition or even a oligopoly. Entity doesn't make money, so entity raises prices. People that don't want to pay, don't.
missplaced anger | 10:32 a.m. April 15, 2008
Airlines function on razor thin margins even when times are good. The fact of
the matter is that they should have raised fares a long time ago. Instead, they
have cut back on everything that makes air travel enjoyable. Now there is
nothing left to cut so higher fares become inevitable.
Maybe we should gripe at our all-knowing government that makes it ridiculously difficult for us to find and extract energy from within our own borders. Government energy policy is causing the price of everything to go up. As usual government is the root of most of our problems.
Maybe we should gripe at our all-knowing government that makes it ridiculously difficult for us to find and extract energy from within our own borders. Government energy policy is causing the price of everything to go up. As usual government is the root of most of our problems.
Clarity for Clarity | 10:41 a.m. April 15, 2008
Um, yes, that is how I define a good merger: Is it good for me? Is it good for
you? Honestly I couldn't give two figs about whether or not this is good
for Northwest or Delta. Like most sane people on this earth, I want to know how
this news will affect MY life.
I bet you're upset with high gas prices. Why? Because it affects your life negatively. I bet you're upset with high food prices. Why? Because it affects your life negatively.
Maybe you should tell people in Myanmar who are rioting over the cost of rice that they need to think about what a benefit the high prices are to those big corporations that process rice.
Bottom line: Is this merger good for the average joe down on Planet Earth (no, I don't count fat cat executives as being down on earth)? No it isn't.....so I don't like it.
I bet you're upset with high gas prices. Why? Because it affects your life negatively. I bet you're upset with high food prices. Why? Because it affects your life negatively.
Maybe you should tell people in Myanmar who are rioting over the cost of rice that they need to think about what a benefit the high prices are to those big corporations that process rice.
Bottom line: Is this merger good for the average joe down on Planet Earth (no, I don't count fat cat executives as being down on earth)? No it isn't.....so I don't like it.
Clarity for Clarity.. | 11:02 a.m. April 15, 2008
Here are reasons the merger is good for you:
1. Delta will, by its estimation, make more money. More money means more new, safe, and more comfortable airplanes on which you may fly. Plus, for us average joes, new airplanes mean less pollution and lower fuel consumption, which reduces demand and keeps our gas prices lower than they would be otherwise.
2. Such airplanes would likely come from long-time Delta partner Boeing, which has a presence in Utah, thus helping Utah's economy--benefiting the 739 "average joes" that work for Boeing.
3. This merger will undoubtedly result in more direct flights from SLC, including international flights, which will increase traffic to KSLC, benefiting "average joes" who like direct flights.
4. If low-cost airlines are your thing, Southwest remains an option, and other low-cost airlines like Airtran and JetBlue will likely expand into SLC during the next economic expansion, giving "average joes" more low-cost airline choices.
1. Delta will, by its estimation, make more money. More money means more new, safe, and more comfortable airplanes on which you may fly. Plus, for us average joes, new airplanes mean less pollution and lower fuel consumption, which reduces demand and keeps our gas prices lower than they would be otherwise.
2. Such airplanes would likely come from long-time Delta partner Boeing, which has a presence in Utah, thus helping Utah's economy--benefiting the 739 "average joes" that work for Boeing.
3. This merger will undoubtedly result in more direct flights from SLC, including international flights, which will increase traffic to KSLC, benefiting "average joes" who like direct flights.
4. If low-cost airlines are your thing, Southwest remains an option, and other low-cost airlines like Airtran and JetBlue will likely expand into SLC during the next economic expansion, giving "average joes" more low-cost airline choices.
Re: Clarity | 11:00 a.m. April 15, 2008
Unfortunately, that isn't how the world is run, or will ever run.
Yes, I don't like paying more for stuff, who does?
Why should airline prices go down when gas prices have tripled?
I don't even know why I am arguing with you. I think this blog attracts the crazies. Perhaps I am included in that bucket.
Yes, I don't like paying more for stuff, who does?
Why should airline prices go down when gas prices have tripled?
I don't even know why I am arguing with you. I think this blog attracts the crazies. Perhaps I am included in that bucket.
Clarity to Confused | 11:20 a.m. April 15, 2008
to Clarity to Clarity:
I was not taking a position (as you could see from my comments) merely explaining the theory.
I agree that bigger companies taking a larger segment of the market has a tendency to stifle competition.
That being said, the Mergers are allowed and will tend to happen. Since that is the case the Delta/NW combination is better for SLC than a Delta/United combo that was floated about previously as SLC will remain with a Hub which translates into keeping jobs in Utah.
I am not for or against Mergers of this nature in general but must laugh when people make the argument that competition is better for everybody and then argue that companies should not be allowed to compete under their own terms, including but not limited to mergers.
I was not taking a position (as you could see from my comments) merely explaining the theory.
I agree that bigger companies taking a larger segment of the market has a tendency to stifle competition.
That being said, the Mergers are allowed and will tend to happen. Since that is the case the Delta/NW combination is better for SLC than a Delta/United combo that was floated about previously as SLC will remain with a Hub which translates into keeping jobs in Utah.
I am not for or against Mergers of this nature in general but must laugh when people make the argument that competition is better for everybody and then argue that companies should not be allowed to compete under their own terms, including but not limited to mergers.
Get a clue! | 11:47 a.m. April 15, 2008
@ Clarity for Clarity
This merger is NOT for your benefit. It is not for the benefit of the employees. It is solely for the benefit of the Delta and Northwest stockholders. Their evil goal: Make money.
Perhaps with another administration, the deal would be nixed on anti-trust. But who knows, then we might just be left with two fewer airlines.
If you want public transportation, nationalize the whole airline industries. Then fares might be cheap, but effectively really expensive.
This merger is NOT for your benefit. It is not for the benefit of the employees. It is solely for the benefit of the Delta and Northwest stockholders. Their evil goal: Make money.
Perhaps with another administration, the deal would be nixed on anti-trust. But who knows, then we might just be left with two fewer airlines.
If you want public transportation, nationalize the whole airline industries. Then fares might be cheap, but effectively really expensive.
Pittakos | 12:55 p.m. April 15, 2008
If the airlines don't make money, they go bankrupt. Some pull out and
others collapse. When others collapse, there are fewer seats to be had. Being
profitable doesn't seem like a non-benefit for some of us.
The airlines are dying | 1:28 p.m. April 15, 2008
The airlines are consolidating and shrinking in what will prove to be an
ultimately futile attempt to continue to exist in anything like their present
form.
The end of the cheap oil era makes mass market air travel an unworkable business model. The airlines will shrink to accomodate the much smaller fraction of the population who will still be able to afford their much higher costs. For the rest of us, we will get used to riding on busses and trains again.
Your tremendous sense of entitlement is probably telling you this can't be true. But the coming years will change your mind.
The end of the cheap oil era makes mass market air travel an unworkable business model. The airlines will shrink to accomodate the much smaller fraction of the population who will still be able to afford their much higher costs. For the rest of us, we will get used to riding on busses and trains again.
Your tremendous sense of entitlement is probably telling you this can't be true. But the coming years will change your mind.
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Danny Chan La, Deseret News
Planes from Delta Air Lines and Northwest jets may soon be flying under the same name - Delta - if regulators and boards approve an agreement the two airlines announced Monday. Salt Lake City will retain its hub in the deal.
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