26 September 2008

So its all over bar the shouting.... New Delta

Given the lame duck status of most of the Congress, the Administration and the current focus on other things - the FAA, the European Commission and the shareholders/boards of both airlines have all agreed that there is no stopping this monster merger.

Lost in this - perhaps - is the impact on the consumer and the industry itself. It is unlikely that there is any appetite to object. We cannot forget that implicit in the merger is market power and a raising of airfares by New Delta. The process of rationalization will result in some (shocking) uncovering by New Delta that the extent of the cuts necessary to make the merger work will exceed the case the original players put forward.

The follow on will be a new dance of potential mergers but this wont start to happen until at least the first half of 2009 when the new US Administration is in place.

If we believe Boeing and that oil will return to $80 a barrel - then the remaining US carriers will be well positioned to ride out the recession. However if oil stays north of $100 and/or the recession bites deeper next year than anyone else sees - then we are going to see an "urge to merge" occurring sooner.


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