With all the recent articles regarding rumors of mergers, (Article 2), (Article 3), I thought it would be a good idea to sift through them so we can speculate where we may be headed over the next several months. Obviously there are only two serious contenders so this post will deal only with the possibility of a merger with either Continental or US Airways.
Which merger makes the most sense? In my opinion, if we must merge, a Continental tie-up would be the optimal choice. There are a few factors that lead me to this conclusion, not the least of which is the fact that Continental is a much more stable enterprise. For us, I believe the most important aspect of any merger would be the impact on Labor. According to this piece from 2006, Labor can make some monetary gains when mergers are proposed, but outside of that, the previous wave of consolidation was very difficult on employees. The point of the previous article was a review of overlaps between the big six airlines and which of those the author felt would pass DOJ scrutiny. The author's prediction that a Delta Northwest combination would pass turned out to be correct. Neither of the possible current merger candidates presents an overlap in hubs that would lead to an immediate consolidation of hubs involving employee reductions at any of our current points, with the exception of Washington DC in a merger with US Airways. Of course there could be reductions in some hub flying with either combination as a way for a merged carrier to reduce costs. With that said, it seems the President of ALPA, Capt. John Prater, has weighed in on which merger he supports. While Capt. Prater would support a merger with CAL, a merger with US Airways would provide for an election once single carrier status was granted, and ALPA could regain its lost membership from US Airways. The combination that would result in the fewest union elections would be the one with CAL. For that merger the Flight Attendants, Ramp, and Customer Service Agents would all be in a position of possible certification elections while the Pilots and Mechanics would not. In a merger with US Airways every group would potentially face elections.
In one of the articles in the opening paragraph, two airlines have stated they are open to mergers. Of course those two are United and US Airways, and the rumors of this tie-up were addressed in a previous blog post. So what about Continental? The rumors surrounding Continental's involvement are more subdued. Here is an article where Glenn Tilton hints that he is still interested in CAL, and here is an article where Jeff Smisek says CAL's not interested at this time but would be open to it if the DAL/NWA merger becomes a profitable enterprise. This is in line with the speculation of the 2006 article where the author felt that a successful merger amongst any of the big six would trigger a wave of consolidation similar to what happened in 1985.
So what does all this tell us about the future of our industry? It seems certain that consolidation will happen, and it is my feeling that it will occur soon. The question that remains open is which partner United chooses. It looks like we are in for an interesting couple of months in the industry.
EDIT: Found this today while surfing the stock message boards. It is the authors opinion that the stock could be headed higher based on the market assumption of a merger with CAL and the market cap that would produce. It's an interesting read.
EDIT: Here is an article posted on the Denver Blog today regarding the conventional wisdom of a UAL/CAL merger and the reasons why the author thinks this is inevitable
