Wall Street has just closed up shop for the day. Delta lost 12 percent of its value, closing down $1.32 (Chart here). Northwest lost about $1 a share; that’s an 8 percent drop in value (See chart).
What were the investors telling us?
They want more cuts.
Here’s Nathan Grawe’s take on it. He’s associate professor of economics at Carleton College
“The argument they (Northwest and Delta) are trying to make is that by providing a better network for consumers, they will increase revenues and so they don’t have to touch the cost side. And if you look at what happened to Delta and Northwest stock today, I think what you saw is investors were frankly disappointed by what they heard because they thought the whole point of the merger was to weed out unnecessary costs and we could gain economy of scale by having a larger company and eliminating redundancy.” (Listen to his full answer)
“It seems that almost inevitably in the long run, you’d have to have some jobs become redundant,” he says. He expects more job cuts. “The only question is how big and how painful.”
Here’s my entire interview.
By the way, perhaps you — like me — have been blown away by the sheer jargon of this thing. “City pairs?” “Revenue synergies?” “Wage harmony?” What language are they speaking?
Here’s a couple of explanations, thanks to Grawe.
City Pair — Start in one city, end in another city. Those two cities are “paired.” Minneapolis to Boston, for example, makes Minneapolis in Boston one city pair.
Wage harmonization – When one group isn’t paid more — or less — than another group of workers for doing the same thing. There are, of course, two ways to achieve “harmony:” Bring the lower-paid worker up or bring the higher-paid worker down. That of creates disharmony.