End the speculation. We can now begin to debate the facts surrounding the Delta-Northwest combination. I must say that I expected to see significant changes from the deal that wasn't. What appears unresolved today is not much different than what was unresolved yesterday. As this day closes, I am an industry observer that is pleased to see a consolidation round begin in earnest.
Over the coming days, weeks and months we will be hearing about how the sky is falling. I remain steadfast that consolidation is in the best interest of all US airline industry stakeholders in the long run at this juncture. For some, consolidation through merger and acquisition activity means that the sky is falling. For me this type of consolidation is much better than consolidation through liquidation. In that case, airlines are falling from the sky and dislocations are forever.
Over the coming days much will be written. I will write. In any number of conversations I had today, the issue of labor risk; technology risk; and any other risk that could be raised as standing in the way of a successful combination of Delta and Northwest required addressing. And oil, the number one catalyst (read risk) behind the discussion of consolidation traded at levels approaching $114 per barrel of crude. Assuming that the crack spread is similar to last week’s level, then the "in the wing" price for the industry approached $145 per barrel today.
All of us really do need to stop talking about oil in a per barrel of crude denomination. We have to remember to add the crack spread to the cost of a barrel of crude. Me included. John Heimlich, the Chief Economist at the Air Transport Association has made some additions to his presentation on oil and its impact on the industry. Read it as it provides great perspective and why we find the US industry in its current position.
There Was Other News
We cannot have a day with news of promise in the US without a story on the “Flying Pig”: Alitalia. Reuters reported on the ongoing saga and how, and why, newly elected Prime Minister Berlusconi vows to keep Alitalia flying. The article reports, “Alitalia's ready cash is shrinking by about 3 million euros a day and now has funds left only for the immediate future -- a question of weeks or at most a couple of months, observers say”. The article goes on to say, “IATA, the airline industry association, has told Alitalia it must provide guarantees to be able to stay in IATA's system to settle ticket purchases if it were to go into administration”. Time is a tickin’ in Milan.
And finally, as the day really does come to a close, I sit and watch Neil Cavuto interview Captain Sam Mayer representing the Allied Pilots Association regarding their march today on American Airlines’ largest customers and institutional investors. As I have written all too often, this situation of labor suggesting that they join with customers to force American (or the industry) to address internal issues is reckless and has a higher probability of backfiring than benefiting any one stakeholder at American Airlines (or any other carrier). This is about getting a contract. I just wonder if APA told these valued customers and investors about the magnitude of the ask in their proposal and that they claim that only minimal fare increases are necessary to fund their ask. Best I know, fare increases are what customers like to hear. I doubt it.
And Frontier Receives Notice of Delisting. This story for me truly underscores the fragility of the industry today and why liquidity is king. An interesting day indeed.
One step forward for some and steps back for others. But we will get there someway, somehow.
More to come.