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Why Did The UA-US Merger Fail In The Early 2000s?  
User currently offlineUnited Airline From Hong Kong, joined Jan 2001, 9169 posts, RR: 15
Posted (1 year 7 months 1 week 9 hours ago) and read 3138 times:

Why did the UA-US merger fail in the early 2000s? The AA-TW merger went through. Why not UA-US? Perhaps due to financial reasons which UA was in trouble?

I remember it was due to anti-competition laws. But how come mergers go through easily nowadays?

14 replies: All unread, jump to last
 
User currently offlineTWA772LR From United States of America, joined Nov 2011, 2055 posts, RR: 1
Reply 1, posted (1 year 7 months 1 week 9 hours ago) and read 3134 times:

UA and CO were in talks before UA and US. UA then went to US to scare CO because everyone knew UA/CO was a better match than UA/US. Then in 2009/2010, viola.


Go coogs! \n//
User currently offlineAeroWesty From United States of America, joined Oct 2004, 20640 posts, RR: 62
Reply 2, posted (1 year 7 months 1 week 9 hours ago) and read 3130 times:

Quoting United Airline (Thread starter):
Why did the UA-US merger fail in the early 2000s?

A lot of good info about it from the era in this thread!  

Morgan Stanley's View On The UA- US Merger (by United Airline Jun 27 2001 in Civil Aviation)



International Homo of Mystery
User currently offlineUnited Airline From Hong Kong, joined Jan 2001, 9169 posts, RR: 15
Reply 3, posted (1 year 7 months 1 week 9 hours ago) and read 3025 times:

I know and I posted that. But it seems that mergers go through so easily nowadays but not back then. Why?

User currently offlinemariner From New Zealand, joined Nov 2001, 25260 posts, RR: 85
Reply 4, posted (1 year 7 months 1 week 8 hours ago) and read 2996 times:
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Quoting United Airline (Reply 3):
. But it seems that mergers go through so easily nowadays but not back then. Why?

The overlap of routes would have been too great resulting in greaty reduced competition. The DOJ made its case against the merger here:

http://www.justice.gov/atr/public/press_releases/2001/8701.htm

"Hub-to-Hub Nonstop Markets Passengers spend over $900 million annually to travel on routes between United's and US Airways' hubs. On seven of these routes, US Airways and United are each other's most significant competitor, and on four of those (Philadelphia-Los Angeles, San Francisco and Denver; and Pittsburgh-Washington, D.C.) US Airways and United are each other's only nonstop competitor. On the other seven hub-hub routes, US Airways is currently the only airline offering nonstop service, and United is the most likely airline to enter.

Washington, D.C. and Baltimore Nonstop Markets. United and US Airways offer competing nonstop service between Washington, D.C. and many cities, such as Rochester, NY, and New Orleans, LA. They are also the only two airlines providing nonstop service between Baltimore and Los Angeles and San Francisco. Consumers spend over $1 billion each year to travel in these markets.

East Coast Connect Markets. Because they operate most hubs that provide connecting service between cities in the eastern United States, United and US Airways are the only two airlines, or two of only three airlines, offering connecting service between northeast cities such as Albany, NY and Burlington, VT, and southeast cities such as Greensboro, NC and Roanoke, VA. The acquisition would solidify their control over the major connecting hubs for east coast traffic -- Pittsburgh, Philadelphia, Washington-Dulles, and Charlotte.

International Routes. US Airways competes with United (through United's marketing alliance with Air Canada and Lufthansa) in a number of international markets. In several of these, including Philadelphia-Toronto and Philadelphia-Frankfurt, the acquisition would eliminate the only nonstop competitor for United's alliance partner.

Corporate and Government Business. Like the other major airlines, United and US Airways bid for high volume contracts with large corporations, negotiating discounts to their airfares in return for a corporation's commitment to concentrate travel on the airline. They compete vigorously against each other, particularly when the corporation requires significant travel on nonstop routes where United and US Airways compete. United and US Airways also compete for the $1 billion the U.S. government spends on air travel, and were the only two, or two of only three bidders, on many city pairs.

Airline Service Concentration. United's acquisition of US Airways will create or enhance dominance at many cities throughout the United States, including Boston, Washington, and Philadelphia. Competition for the millions of passengers traveling to and from these cities will decrease, resulting in higher fares and reduced service."


There's more on the link, but those are the basic points.

mariner

[Edited 2013-02-13 22:21:21]


aeternum nauta
User currently offlinesmoot4208 From United States of America, joined Jan 2010, 1307 posts, RR: 11
Reply 5, posted (1 year 7 months 1 week 8 hours ago) and read 2911 times:

Quoting mariner (Reply 4):
Washington, D.C. and Baltimore Nonstop Markets. United and US Airways offer competing nonstop service between Washington, D.C. and many cities, such as Rochester, NY, and New Orleans, LA. They are also the only two airlines providing nonstop service between Baltimore and Los Angeles and San Francisco. Consumers spend over $1 billion each year to travel in these markets.

This is what really upset me here. When US tries/tried to make the case for limiting DCA slots, the argument that XYZ airline already flies it from IAD/BWI or can fly it from there is thrown out. Yet when it works to the DOJ's favor (like it did in this 2000 merger), BWI, IAD, and DCA were all considered the "same" region and it would therefore reduce competition. But if B6 or WN had to compete out of BWI or IAD verse US at DCA, the DOT/DOJ claimed it was unfair because the airports aren't the same.


User currently offlinegigneil From United States of America, joined Nov 2002, 16347 posts, RR: 84
Reply 6, posted (1 year 7 months 1 week 8 hours ago) and read 2902 times:

Its a little different - in 2000, US Airways controlled the vast majority of the Baltimore AND National AND Philadelphia AND Charlotte markets, and United controlled all of the Dulles market.

That's literally the entire Mid Atlantic for hundreds of miles.

NS


User currently offlinemariner From New Zealand, joined Nov 2001, 25260 posts, RR: 85
Reply 7, posted (1 year 7 months 1 week 7 hours ago) and read 2818 times:
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Quoting United Airline (Reply 3):
I know and I posted that. But it seems that mergers go through so easily nowadays but not back then. Why?

As a comparison, one analyst is suggesting very little resistance from the DOJ in this case - maybe some divestiture at DCA, CLT and DFW - maybe.

His reasoning explains why this is different:

http://www.reuters.com/article/2013/...an-antitrust-idUSLNE91C00O20130213

"US Airways and American Airlines are likely to win approval to create the world's biggest carrier, with regulators expected to focus on concessions to preserve competition in Washington, Charlotte, Dallas and other airports where they are dominant, antitrust experts say.

To preserve competition, antitrust experts say, the Justice Department is likely to ask for divestitures in US Airways' hub at Washington's Reagan National and Charlotte, N.C., and AMR's hub in Dallas. Outside these areas, the carriers fly different routes for the most part.

"Overlapping routes are bad, and connecting routes are good," said Herbert Hovenkamp, who teaches antitrust at the University of Iowa College of Law.

"If you put these two airlines on a map you're going to see a lot of complementary routes but you're not going to see very many where the two of them fly on the same route," he added."


mariner



aeternum nauta
User currently offlineCubsrule From United States of America, joined May 2004, 23017 posts, RR: 20
Reply 8, posted (1 year 7 months 1 week 1 hour ago) and read 2551 times:

Quoting mariner (Reply 7):
To preserve competition, antitrust experts say, the Justice Department is likely to ask for divestitures in US Airways' hub at Washington's Reagan National and Charlotte, N.C., and AMR's hub in Dallas. Outside these areas, the carriers fly different routes for the most part.

What exactly is going to get divested in CLT or DFW? The handful of AA or US gates that AA won't want anyway? Mexico routes that currently have available authorities? I don't see it.



I can't decide whether I miss the tulip or the bowling shoe more
User currently offlinebobloblaw From United States of America, joined Jan 2012, 1725 posts, RR: 1
Reply 9, posted (1 year 7 months 1 week ago) and read 2514 times:

Quoting TWA772LR (Reply 1):

That's not correct. There were never serious UA/CO talks in 2000. Your post suggests UA was never really serious about US but the fact is they were very serious. CO may have been better but in order for UA to merge with CO, AA wound have to buyout NW and the golden share. DL wasn't interested in playing the game in 2000. AA eventually thought NW wound be too cumbersome and too much overlapping.

While the buyout, it wasnt a merger, was rejected, fact is the idea was collapsing under its own weight.


User currently offlineDCA-ROCguy From United States of America, joined Apr 2000, 4506 posts, RR: 33
Reply 10, posted (1 year 7 months 6 days 23 hours ago) and read 2391 times:

In 2000, the low-fare carriers were much smaller than they are now; legacies were over 75 percent of the market, if I remember right. JetBlue was just starting, and WN and FL were smaller. A lot of medium-size markets did not have a low-fare carrier--places like GSO, ROC, ALB, BTV. A lot of elected officials had reasons to oppose the merger, and it never helps when there's political opposition. I for one wrote two newspaper columns opposing the transaction.

Finally, as Bobloblaw noted, by the time the review and fight had dragged into 2001, the merger no longer made sense. The economy was weakening, and the combination of two high-cost carriers no longer seemed to make sense. When the Bush DOJ ruled against UA-US, it already was coming apart.

By 2009-2010, low-fare carriers were much larger and secondary markets had more LCC competition, most legacies had reduced costs some in bankruptcy, and the Bush and Obama administrations were open to the arguments the carriers made for cost-synergy benefits from merging.

Jim



Need a new airline paint scheme? Better call Saul! (Bass that is)
User currently offlineouboy79 From United States of America, joined Nov 2001, 4599 posts, RR: 22
Reply 11, posted (1 year 7 months 6 days 23 hours ago) and read 2325 times:

Quoting TWA772LR (Reply 1):
UA and CO were in talks before UA and US. UA then went to US to scare CO because everyone knew UA/CO was a better match than UA/US. Then in 2009/2010, viola.

You are off on your thinking by several years. This is about the original(?) US/UA merger discussion that would have resulted in DC Air being formed, other assets going to AA, etc.


User currently offlinemariner From New Zealand, joined Nov 2001, 25260 posts, RR: 85
Reply 12, posted (1 year 7 months 6 days 21 hours ago) and read 2209 times:
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Quoting Cubsrule (Reply 8):
What exactly is going to get divested in CLT or DFW?


You'll need to ask the analyst that. I have no idea - I didn't write the article.

I was using the article to illustrate to the OP - who wanted to know - why this merger may be considered different from (first) UA/US.

mariner



aeternum nauta
User currently offlineCubsrule From United States of America, joined May 2004, 23017 posts, RR: 20
Reply 13, posted (1 year 7 months 6 days 21 hours ago) and read 2178 times:

Quoting mariner (Reply 12):
You'll need to ask the analyst that. I have no idea - I didn't write the article.

Professor Hovenkamp is an antitrust guy, not an airline guy. I doubt he knows how little there is to meaningfully divest in either place.



I can't decide whether I miss the tulip or the bowling shoe more
User currently offlinemariner From New Zealand, joined Nov 2001, 25260 posts, RR: 85
Reply 14, posted (1 year 7 months 6 days 21 hours ago) and read 2090 times:
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Quoting Cubsrule (Reply 13):
Professor Hovenkamp is an antitrust guy, not an airline guy. I doubt he knows how little there is to meaningfully divest in either place.


Exactly - and he was asked his opinion as an anti-trust expert. Since anti-trust was the basis of the DOJ rejection of first UA/US I thought he explained it extremely well.

You want to have a fight about the examples he gave, I won't play. I'll only defend his illustrations of the greater anti-trust issues.

Academics deal in abstracts.

mariner

[Edited 2013-02-14 10:06:03]


aeternum nauta
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