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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.
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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.