you have answered your own argument in saying why the objection to mergers in the 80's was strong, most of which can largely be viewed as to eliminate competitors rather than to strengthen a carriers network. LCC's have grown to the point (as you say) that network carriers no longer have pricing power. Further, there are very few markets left where a network carrier can shut out competition. Look at every major network carrier hub and you'll find that there is either a LCC carrier there, in a nearby airport, or one which serves the key O&D's at least by connection served by the network carrier nonstop. Slot controls are falling and airports are prying gates out of network carrier's hands in order to allow new competitors. We're not totally there yet in terms of completely open competition but there are very few places where network carriers can hide and charge high fares.
Most mergers have reduced competition, not enhanced it. That is why Delta's post-deregulation mergers stand unique in this industry since Delta had very little overlap w/ either Western or the Pan Am assets they acquired. Keep in mind also that there was no Airtran or JetBlue in the late 80's, the LCC's of the time were poorly run, and Southwest was far from a national carrier. Further, Frontier and Airtran are to a great extent really network carriers that just operate w/ much lower cost and at a much smaller size so they serve as just as viable competitors as UA
- along w/ all of the connect markets that they overlap w/ network carriers on. There are now more airlines w/ significant national coverage than there were before the mergers of the late '80's and fares are much larger. All of the LCC's are taking on the big transcon markets. It would be very hard to argue that any merger today (except perhaps between UA
or between CO
) could reduce competition. None of the big six overlap each other in a predominant way like Republic and NW
did, although there are some regional overlaps (like DL
hub vs UA
I agree that it is not likely than any carrier will move forward w/ a merger as long as the possibility of a liquidation exists in the industry. Given that enough gov't aid has been given to the industry, it is becoming less and less likely that any of the big six will fail outright. Also, gov't and civic leaders will be far more inclined to support a merger or significant acquisition even if a carrier is in bankruptcy and on the throes of failure rather than run the risk of a shutdown of one or more carriers - even though we need one or two carriers' worth of capacity to leave the industry. Creditors, on the other hand, would far rather see airlines acquire each other in an orderly process where one carrier assumes the liabilities of another which is why UA
is very unlikely to fail outright - the ramifications to leasing companies and banks is too huge.
I certainly haven't seen any plans from any carrier to merge but know that many carrier's execs are saying exactly that consolidation must occur and capacity must be removed from the network carrier industry. Network carriers w/ the best financial flexibility (again relative to each other - not necessarily to LCC's or industry as a whole) like DL
have the best ability to dictate their future. AA
are in the next camp - very tight balance sheets but generally well run over time and w/ a proven ability to deal w/ the changing environment. US and UA
will be least likely to call the shots given their recent trip through (or in) bankruptcy.
I also wouldn't rule out the possibility of LCC's merging - or even acquiring some of the excess hubs from network carriers. Bottom line, is that the line between legacy network carriers and LCC carriers will become increasingly blurred. The primary difference will be that legacy network carriers will have bigger, well-developed international route systems. Legacy carriers will bring costs down while current LCC's will see costs go up as workers age (Southwest is now 30 years so employees are starting to retire from a full career w/ them), new fleets are added (single fleets are becoming harder to use to build a nationwide route system), and some LCC's start flying overseas and with it higher costs.
Finally, European carriers are consolidating and excess carriers and hubs are being eliminated. It's hard for the US to argue that we should have so many unique carriers when Europe can allow it to happen and there are national sovereignity issues involved over there.
I would expect that you'll start seeing movement toward industry consolidation as soon as next spring to summer.