US airlines step into merger zone
11 January 2008
US airline stocks closed sharply higher Thursday on the back of strong market speculation that market consolidation was close at hand for some carriers.
Reports said that the board of Delta (DAL) was scheduled to discuss on Friday whether talks regarding a merger should begin with Northwest (NWA) and UAL (UA).
Although consolidation has frequently been talked about, initiatives in this direction can now be taken meaningfully with a combination of tight credit, a lower earnings outlook and rising fuel prices making all stakeholders within the airline more receptive to merger possibilities than in the past.
A letter to Delta pilots from Lee Moak, chairman of the Delta chapter of the Air Line Pilots Association has strengthened an impression within the market that merger moves were very strongly on the cards.
"While we have been hearing about 'inevitable consolidation' for many years, it is becoming increasingly difficult to discount these facts and other recent events as simply more rhetoric," Moak wrote. "Consolidation may indeed be at our door."
The market responded positively to the move with shares of all three carriers climbing sharply. Delta rose 18%, Northwest gained 32% and UAL 24% on Thursday trades.
Shares of other major US carriers responded similarly with AMR, the owner of American, up 13% and Continental (CAL) advancing 24%. US Airways was up 15%.
LCCs like JetBlue and Southwest were also higher, though not in the same range as the network carriers.
Market analysts have always said that if Delta and Northwest should link up attempts at other combinations could follow.