By: David Pelter, VP of Pricing
Wow, 2007 certainly is off to a roaring start. A lot of noteworthy items to report this week:
First, in merger news …
US Airways Doubles Down: Ups Its Bid for Delta Air Lines
News: US Airways came forward and increased their bid to acquire Delta. The new bid, valued at approximately $10.2 billon, is set to expire on February 1, 2007 and represents a $2 billion increase from their previous offer. Delta’s management immediately responded with a statement expressing that while its board would review the new offer, it is very concerned about the new offer adding $1 billion of debt to the newly combined entity.
Analysis: Now that US Airways has increased its offer by 25%, look for two things in the next few weeks: 1. Intense lobbying efforts to gain creditor (they hold the cards) support and; 2. Other competitive merger deals surfacing with Delta in the face of a very aggressive US Airways bid. For example, a Delta/Northwest combination has always been mentioned but talks are heating back up.
AirTran Increases Its Bid for Midwest Airlines; Launches CheeseHead Campaign
News: AirTran also came forward this week and increased its bid for Midwest Airlines, upping its offer to $345 million, up from $290 million. In the mean time, AirTran launched a media blitz to convince Milwaukee residents that this deal is good for them. Separately, Midwest announced a stand-alone plan of its own including adding routes and replacing airplanes.
Analysis: AirTran is an aggressive company that has wanted to get this deal done for a long time. Therefore, expect this management team to keep persisting with its acquisition efforts. On the Midwest side, product quality and loyalty are absolute cornerstones of the company and expect both to be defended vigorously in the face of possible brand dilution.
For more merger analysis, check out my previous blog.
Second, in travel web site news …
Expedia D’oh! American Airlines Pulls All International Fares from Expedia
News: American Airlines decided this week to no longer make available to Expedia all of its international and domestic first and business class fares. This doesn’t affect previously ticketed customers, only those customers who are shopping at Expedia for a future ticket.
Analysis: As a travel supplier, AA’s cheapest distribution channel is selling tickets through its own web site. This is why virtually all airlines have their web address stamped on everything from interns foreheads to cocktail napkins. In contrast, Expedia is likely one of AA’s most expensive distribution channels, while at the same time producing low average fares for AA because of Expedia’s highly leisure customer base. Though this could always be a one-time negotiation tactic by AA, the effect of the world’s largest airline choosing to permanently not offer fare content to the largest online travel agency is huge. The downstream impact could drastically affect how and where travel is sold.
Finally, in other news …
No More Preflight Latte for You: Airlines Try to Boost Domestic Fares by ~$5
News: American, Delta, United, and Northwest all raised fares by as much as $5 on most domestic routes.
Analysis: You may need to forego that preflight latte next time you travel if this latest fare increase sticks. Highly volatile oil prices combined with generally strong demand make this an opportune time for the airlines to try and increase prices. Time will tell whether this increase will be matched all the domestic airlines but, with most of the big guys onboard already, expect this one to hold.