Continental To Stay Independent...For Now

Todd Michaels

HOUSTON (AP) -- Continental Airlines Inc. said Sunday it would not pursue a combination with another carrier right away, a surprising move after weeks of growing speculation that it would join with United Airlines to create the world’s biggest airline.

Continental Chairman and Chief Executive Lawrence Kellner said in a message to employees that the Houston-based airline was better off alone than merging.

“We have significant cultural, operational and financial strengths compared to the rest of the industry, and we want to protect and enhance those strengths — which we believe would be placed at risk in a merger with another carrier in today’s environment,” Kellner told employees.

Although it reported an $80 million loss in the first quarter, Continental is widely viewed as the second-strongest U.S. carrier in financial terms, behind only Southwest Airlines Co., which has indicated it isn’t interested in a merger.

While Kellner ruled out a merger for the time being, Continental appeared to leave the door open to an alliance with another carrier. The airline has reportedly discussed such an arrangement with AMR Corp., the parent of American Airlines, in which the companies would work together in many ways but not merge their operations.

NYCAAer

The management team at CO is wise to stay out of this merger mania. I remain skeptical of the DL-NW merger being successful. Merging won't make fuel costs go down, which is the single biggest issue threatening the survival of airlines today.

I was thrilled to hear this news being an employee of AA. I feared a UA-CO combo would coerce AA into a merger with US Airways, since they'd be the only game in town. We don't need any more blows to our morale at American after the disaster that was the TWA buyout. Seven years later and that error still stings.

Horizon CRJ700

Wow, what an excellent decision on Continental's part. Remember, folks, unless it passes anti-trust muster, the merger between Delta and NWA still won't happen. I still have my fingers crossed that this merger fails. Would hate to see what Delta would do to NWA's operations at PDX... Scary

superbou

It's good for the brand but I don't think it's good for the future of the airline as the oil prices are rising.
Just wait & see...

L-1011-Heavy

Quote: Originally Posted by NYCAAer The management team at CO is wise to stay out of this merger mania. I remain skeptical of the DL-NW merger being successful. Merging won't make fuel costs go down, which is the single biggest issue threatening the survival of airlines today. I was thrilled to hear this news being an employee of AA. I feared a UA-CO combo would coerce AA into a merger with US Airways, since they'd be the only game in town. We don't need any more blows to our morale at American after the disaster that was the TWA buyout. Seven years later and that error still stings.

I Wouldn't Be So Bold About That. The BIGGEST Advantadge Of A Merger Is Eliminating Redundant Competitive Flights That Carry Say 40-50-Or 60% Or Even 70% Capacity.
Optimizing Flights To 90-97% (As Air Canada Did) Will Give The New Airline PROFITS.
Of Course There Are Other Cost Cutting Benefits Too. Reduced Costs Due To Fewer Employees Per Aircraft, Lower Maintenance & Streamlining Of Aircraft Types For Better Fleet Commonality. A Larger Airline Has Stronger Purchasing & Negotiating Powers Too For A Few Examples.
Air Canada's Business Model Has Netted Them Better Than 300M Quarterly Profits CONSISTANTLY Since Their Restructuring.

NYCAAer

Quote: Originally Posted by L-1011-Heavy I Wouldn't Be So Bold About That. The BIGGEST Advantadge Of A Merger Is Eliminating Redundant Competitive Flights That Carry Say 40-50-Or 60% Or Even 70% Capacity. Optimizing Flights To 90-97% (As Air Canada Did) Will Give The New Airline PROFITS. Of Course There Are Other Cost Cutting Benefits Too. Reduced Costs Due To Fewer Employees Per Aircraft, Lower Maintenance & Streamlining Of Aircraft Types For Better Fleet Commonality. A Larger Airline Has Stronger Purchasing & Negotiating Powers Too For A Few Examples. Air Canada's Business Model Has Netted Them Better Than 300M Quarterly Profits CONSISTANTLY Since Their Restructuring.

But DL-NW does not plan any of the cost cutting you propose. There will be no layoffs of front-line employees due to fewer employees per aircraft. There are few redundant competitive routes between the 2 carriers, and no hubs will be eliminated. Analysts and investors had hoped for the elimination of the CVG and MEM hubs which compete with NW's hub at DTW and DL's at ATL, respectively.

Better fleet commonality will take YEARS, given the 2 carriers' financial situation. Once combined, DL-NW will have 11 fleet types and a whopping 19 fleet types if you count sub-fleets, such as the 757-200 with RR engines, 757-200 with PW engines, 757-300 with PW engines, etc. No cost cutting there. Operational costs will be higher.

Merging the 2 work forces will be a nightmare, given NW's highly militant unionized employees and DL's non-union work force. Plus, training costs for the NW employees will be through the roof, since they will require re-training. In fact, consolidation costs will be astronomical, and labor costs will go up, since DL is planning on bringing the NW employees salaries up to the same level as DL's.

Then there are the other costs, like changing airport gate and ticket counter signage, repainting planes, reconfiguring aircraft cabins, etc.

Bob Crandall, former CEO of American and a true legend in the industry, wrote an article for the op-ed page of the New York Times entitled "Charge More, Merge Less, Fly Better." He is nothing short of a genius who built AA into the airline it is, tough but respected by his employees. He completely tore apart the DL-NW merger, point by point.

And investors aren't too thrilled either. The stock prices of DL and NW aren't going up as a result of the announcement. One analyst wrote a piece called, "DL-NW- Combining Losses, Not Forces."

I still think CO's management is top-notch and they know what they're doing. If I didn't have 19 years at AA, I think I'd be very happy working for them. They have high employee morale, the strongest balance sheet among the U.S. legacy carriers, and are innovative, not imitative. They realize combining with UA would be like tying yourself to a drowning man, and they won't be dragged down by it.

This is a far more complex deal than Air Canada-Canadian, and the economics now are very different. Time will tell, but call me a skeptic about this one.

L-1011-Heavy

Quote: Originally Posted by NYCAAer But DL-NW does not plan any of the cost cutting you propose. There will be no layoffs of front-line employees due to fewer employees per aircraft. There are few redundant competitive routes between the 2 carriers, and no hubs will be eliminated. Analysts and investors had hoped for the elimination of the CVG and MEM hubs which compete with NW's hub at DTW and DL's at ATL, respectively. Better fleet commonality will take YEARS, given the 2 carriers' financial situation. Once combined, DL-NW will have 11 fleet types and a whopping 19 fleet types if you count sub-fleets, such as the 757-200 with RR engines, 757-200 with PW engines, 757-300 with PW engines, etc. No cost cutting there. Operational costs will be higher. Merging the 2 work forces will be a nightmare, given NW's highly militant unionized employees and DL's non-union work force. Plus, training costs for the NW employees will be through the roof, since they will require re-training. In fact, consolidation costs will be astronomical, and labor costs will go up, since DL is planning on bringing the NW employees salaries up to the same level as DL's. Then there are the other costs, like changing airport gate and ticket counter signage, repainting planes, reconfiguring aircraft cabins, etc. Bob Crandall, former CEO of American and a true legend in the industry, wrote an article for the op-ed page of the New York Times entitled "Charge More, Merge Less, Fly Better." He is nothing short of a genius who built AA into the airline it is, tough but respected by his employees. He completely tore apart the DL-NW merger, point by point. And investors aren't too thrilled either. The stock prices of DL and NW aren't going up as a result of the announcement. One analyst wrote a piece called, "DL-NW- Combining Losses, Not Forces." I still think CO's management is top-notch and they know what they're doing. If I didn't have 19 years at AA, I think I'd be very happy working for them. They have high employee morale, the strongest balance sheet among the U.S. legacy carriers, and are innovative, not imitative. They realize combining with UA would be like tying yourself to a drowning man, and they won't be dragged down by it. This is a far more complex deal than Air Canada-Canadian, and the economics now are very different. Time will tell, but call me a skeptic about this one.

Yikes!
Then What Was The Point Of The Merge If They Don't Reap The Benefits?
Not Much More Than A Codeshare.

NYCAAer

Quote: Originally Posted by L-1011-Heavy Yikes! Then What Was The Point Of The Merge If They Don't Reap The Benefits? Not Much More Than A Codeshare.

I have yet to figure out what benefits DL-NW will have in terms of economics. Their route networks complement each other beautifully, with DL dominating US-Europe and expanding into Africa and the Middle East, and NW's strong presence across the Pacific. But that's about it. DL's narrow body domestic fleet is comprised of MD-88s and 737NGs, NW newest domestic fleet are its A319/A320s. DL's long haul fleet has over 100 767s and a handful of 777s. NW is operating its long haul with the largest fleet of A330s in the world, and about 16 747-400s.

Air Canada-Canadian worked because they reduced frequency on all the overlapping routes within Canada, reducing capacity to raise fares and profits, and helping to compete against Westjet and others. Because Air Canada is smaller, simplifying the fleet was easier. They dumped Canadian's older 737s in favor of A320 family jets, and retired the 747-400s of both airlines. A subfleet was created with the 767-300s, since AC's had 2 doors and 2 window exits per side, and CN's were the type with 4 doors per side, not sure if they use the same engines or not. Now the A340 and A330 fleets are being replaced by the 777s.

But it's a lot easier to replace and modernize when you have about 12 A340s and 9 A330s in AC's case rather than DL's 100 767s and NW's 30 A330s. That's a lot of metal to replace and you can't ground any of them to cut costs, otherwise you risk shrinking your route network. The combined DL-NW doesn't want to do that, since they claim having a nearly global network is their greatest strength.

L-1011-Heavy

Quote: Originally Posted by NYCAAer I have yet to figure out what benefits DL-NW will have in terms of economics. Their route networks complement each other beautifully, with DL dominating US-Europe and expanding into Africa and the Middle East, and NW's strong presence across the Pacific. But that's about it. DL's narrow body domestic fleet is comprised of MD-88s and 737NGs, NW newest domestic fleet are its A319/A320s. DL's long haul fleet has over 100 767s and a handful of 777s. NW is operating its long haul with the largest fleet of A330s in the world, and about 16 747-400s. Air Canada-Canadian worked because they reduced frequency on all the overlapping routes within Canada, reducing capacity to raise fares and profits, and helping to compete against Westjet and others. Because Air Canada is smaller, simplifying the fleet was easier. They dumped Canadian's older 737s in favor of A320 family jets, and retired the 747-400s of both airlines. A subfleet was created with the 767-300s, since AC's had 2 doors and 2 window exits per side, and CN's were the type with 4 doors per side, not sure if they use the same engines or not. Now the A340 and A330 fleets are being replaced by the 777s. But it's a lot easier to replace and modernize when you have about 12 A340s and 9 A330s in AC's case rather than DL's 100 767s and NW's 30 A330s. That's a lot of metal to replace and you can't ground any of them to cut costs, otherwise you risk shrinking your route network. The combined DL-NW doesn't want to do that, since they claim having a nearly global network is their greatest strength.

I Guess DL-NW Expect A New Customer Base Simply Due To The Combined Network. It Prolly Will Work To Some Degree, But Cust Cutting Is Important Too.

With Regards To Air Canada, I'll Correct A Few Things.
Air Canada Operated 20 Plus DC-9s & 20 Plus 737s For Several Years After The Merge Until The Newest 319s Were Phased In.
DC-9s Went First, 737s Stayed For Another Year & A Half. Additional 737s Were Used Side By Side Air Canada Ops As Zip & Tango To Compete With
Jetsgo & Westjet.
Air Canada Only Raised Fares On International Routes. They Still Had To Cope With Jetsgo & The Ever Emerging Westjet. (Some 27 Aircraft I Believe At The Time. (10-732s,17-73NG) To A Fleet Now Comprised Of Nearly 60 NG 37s. 600s,700 & 800s.
Air Canada Still Operates Tango Flights On Board Both Premium Air Canada Flights & Jet-Z Flights, But The Livery Is No More.

767s
The 2 Doors Overwing Were Both Canadia>n & Air Canada Ships.
The 767s Became Air Canada's Main Profit Making International Fleet & Were On The Hunt For Them BADLY.
They Purchased Additional 767s From A Few Other Airlines, Hence The 4 Doors Per Side Rather Than Dual Overwing Emergency Exit Window Configuration.
Post Merge, The Planes Were Jam Packed & Air Canada Was Desperate For More 767s. That Is Until 911.
In The Aftermath They Cut The 767 Fleet By Nearly Half. Mostly The Domestic 762s & Any Outstanding Temporary Leases For 763s Went Back To The Lessors.
Shortly Before Restructuring, Air Canada Puilled A Few Back Out Of The Desert Again & Began Growing The 763 Fleet Again.
The 763 Is Still Attributed To Most Of Air Canada Profits.