ejaymd11
Posts: 180
Joined: Thu Feb 22, 2001 8:04 am

Airline Mergers

Tue Mar 27, 2001 3:20 pm

Pesonally I do not like all of the airline mergers that are being proposed, such as Amercan and TWA, or United and US Airways.
Does anyone agree?
Let me know what you think.
 
srbmod
Posts: 15446
Joined: Tue Mar 20, 2001 1:32 pm

RE: Airline Mergers

Tue Mar 27, 2001 3:39 pm

On paper, the United/U.S. Airways merger makes a lot of sense. United is primarily a west coast, midwest carrier, while U.S. Airways is a east coast carrier. U.S. Airways has no real direction into what kind of airline they want to be, and this had led them to this merger. Without this merger, U.S. Airways will continue on their downslide and within 5 years have to liquidate. TWA is a lesson in fiscal mismanagement. TWA in the 1990s was paying for the sins of the 1980s. Carl Icahn, for lack of a better term, ran TWA into the ground. He took the company private, which was a very huge mistake. They sold their lucrative routes to Europe to United, pulled out of inter-European flights, they essential sold the heart of the company when they sold off their rights to LHR. The company was further strangled by the Kariboo agreement they made with Ichan after he left, being forced to sell a percentage of seats to him at a 55 cents on the dollar. TWA would have folded a few months ago had AA not made an offer for them. It was not only a case for keeping up with the competition, but also a case of saving people's jobs. By AA getting involved in the U.S. Airways merger, serves several purposes. Firstly, it settles some of the anti-trust issues that the Department of Justice had with the merger. Secondly, it gets rid of U.S. Airways aircraft that had no commonality with the United fleet. Lastly, it alleviated some of the concerns about DCAir. In my own opinion, AA and UAL will be forced to allow competition of routes they will dominate, and will be forced to give up slots at DCA and other airports in order to allow competition from smaller airlines. Overall, these mergers will not be the last, despite the Congressional attempts to put a 1 year ban on anymore airline mergers. Delta, Continental, America West, Alaska, and Northwest will be involved in some sort of merger amongst themselves, and there will be only a handful of large airlines left, meaning more opportunities for the smaller airlines to grow.
 
DCA-ROCguy
Posts: 3903
Joined: Fri Apr 21, 2000 5:03 am

RE: Airline Mergers

Tue Mar 27, 2001 4:34 pm

The UA-US merger and the others waiting in the wings should all be canned by the Justice Department. The Big 6/ Oligopoly airlines have demonstrated conclusively, through their abuse of President Reagan's gift of the late 1980's mergers, that they will use concentrated market power to destroy competition and oppress medium and small-size markets with high fares. These actions are violations of US antitrust law, just as the oligopolies/ monopolies of the Teddy Roosevelt era were--and they should meet with the same "trust-busting" response.

AA-TW was an unforunate necessity due to the reasons listed by Srbmod. But it only makes American a fraction larger than existing UA and won't trigger superconsolidation on its own. Congress may want to consider passing a law banning predatory Karabu-type arrangements in the future. (Quickly, Mr. Icahn has his wallet and is out shopping for another airline to destroy).

UA-US, by combining US's 6 percent market share with United's 22 percent share, would throw the industry "out of balance." DL-CO-NW have already made clear they will not sit by and watch UA-AA take up 50 percent of the market and leave them behind. Yes, UA-US route systems make good synergistic sense for a merger, but the merger as structured would make UA and AA much too dominant at many major airports (DCA, LGA, BOS) and UA way too dominant at many medium and small airports (ROC, SYR, GSO, RIC, ORF).

You're probably aware that DOJ has extended review again beyond April 2, according to the New York Times, because they're unhappy with the antitrust situation related to these markets. They will probably require UA-US to divest a substantially larger chunk of operations to win approval, probably more than UA-US will accept.

The Big 6 do not have the critical mass to destroy the pesky low-fare carriers without on-paper collusion. And of course theyre on their good behavior this year in order to get mergers approved (hence JetBlue's relatively untroubled existence at JFK). But as soon as they'd consolidate into SuperBig 3, they'd attack the icky margin-eroding low-fare carriers nastily. They would be big enough to destroy the best-managed companies, including Southwest. And the Airline Deregulation Act of 1978 would become the dead letter for everyone that it has long been for cities such as Rochester and Syracuse.

This situation is unacceptable to many of us and we are fighting energetically through the only means available--often ill-informed Congresspeople and Senators--to stop it. Unfortunately, many of our Hill folk are proposing cures worse than the disease, like McCain's horrific percentage-triggered gate redistribution bill for major airports. But to whom else may we turn? Big Air wants excessively high profits off the backs of consumers, and doesn't get the fact that their business is steward of a *private-public marriage.* Air travel is a public good, very much subsidized (despite some arguments you'll hear tothe opposite) by Joe Taxpayer. Far more than most industries. They are not autonomous to gouge us.

Are you new to the forum, Ejaymd11? We've had many go-arounds about the good/ bad of mergers, and I'll probably draw some energetic rebuttals.

The best news, of course, would be if Big Air would clean up their act, and use their size to pass savings along to the consumer. Then no one would be against consolidation, since it would benefit the public. But unfortunately airlines use size to extort excessively high profits (eg late 1990's), and deny the benefits of deregulation to medium-and small communities.

Jim
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