In the airline industry, talk of making matches
By Keith Reed, Globe Staff | June 9, 2005
The airline industry is buzzing with talk of more consolidation should the proposed merger of US Airways and America West Airlines get past regulators.
With those airlines linking up to survive, some analysts are wondering about other airline pairings -- Continental Airlines and Delta Air Lines, for example -- that could help each other and their beleaguered industry stay afloat if they joined forces.
Industry specialists said the combinations that make the most sense are ones in which major airlines could fill gaps in their route maps. But analysts also cautioned that rapid consolidation could have disastrous effects in an industry where many companies barely have the cash to run their daily operations, let alone steer themselves through costly mergers.
''There are any number of different mergers that could make sense, but I will tell you that airline mergers are less pleasant to experience than watching sausage get made," said Henry Harteveldt, vice president of travel research at Forrester Research in San Francisco.
Specialists have predicted consolidation since the industry began its financial nose dive after the 2001 terrorist attacks, which frightened away passengers and triggered a tumult from which the airlines have yet to recover. More recently, high fuel costs have furthered the industry's fiscal weakness, and a new generation of low-fare start-ups has stolen more passengers and forced cutthroat price competition in what was already a saturated industry. What's more, the regulatory environment has changed, analysts say. The Justice Department that quashed a proposed merger between United Airlines and US Airways in 2001 today is more likely to approve alliances to save jobs and companies.
Indeed, some former competitors are turning to each other as allies -- or saviors.
US Airways and America West unveiled their merger agreement last month, nine months after US Airways filed for its second Chapter 11 bankruptcy since 2002. The deal, which still needs regulatory approval, could help bring US Airways back from the brink of a liquidation and would give both carriers more capital and an expanded, nationwide route network.
It's the same reason some analysts think more airline mergers might be coming.
''There are too many hubs in the United States," said Susan Donofrio, transportation analyst at Fulcrum Global Partners in New York. ''We need more consolidation to happen so the airlines can run more efficiently."
Delta Air Lines and Northwest Airlines would make good merger partners because their routes complement each other, she said. Delta has a strong presence on the East Coast and on transatlantic routes, while Northwest flies to Asia and to the West Coast.
Other potential pairs mentioned by analysts included a combined US Airways and America West acquisition of bankrupt United. ''You've got yourself the number one airline in the world at that point," said airline analyst Helane Becker of New York's Benchmark Co.
Harteveldt said Alaska Airlines might be an acquisition target, while discounters like AirTran Airways and Frontier Airlines could be forced into a partnership if the US Airways-America West deal puts more competitive pressure on them.
''If that helps [US Airways and America West] take some low fare traction because they have a better scope, that might make some of these other low-cost carriers say 'What can we do to combat this?' " he said.
Airlines declined to comment on specific potential partners yesterday, but none ruled out the possibility of a merger.
''We have said that we believe that the environment in the US needs to be more open to consolidation," said United spokeswoman Jean Medina. ''The domestic market is suffering from an excess of capacity and our international peers don't face that."
Still, United is focused on emerging from its bankruptcy on its own, not with a partner, she said.
Frontier spokesman Joe Hodas would not discuss any potential merger talks regarding the airline, but said the US Airways-America West deal would not change Frontier's strategy.
''I don't think that there's as much of a threat as you might think," he said.
Other airlines have found ways to partner without merging. Southwest Airlines invested $87 million in ATA Holdings Corp., parent of ATA Airlines last year, helping ATA pull itself out of bankruptcy protection and giving Southwest access to ATA gates and routes in cities where Southwest had little or no presence, such as Boston.
Despite all the talk, some specialists believe that a spate of airline mergers could hurt the industry, tying together several companies with drastically different identities and slim resources to help them through a rough transition.
''Should there be more consolidation? Only if you want to see massive liquidations," said Darryl Jenkins, a professor of business at Embry-Riddle Aeronautical University in Daytona Beach, Fla." It's one of the truly bad ideas out there."
Keith Reed can be reached at [email protected].
By Keith Reed, Globe Staff | June 9, 2005
The airline industry is buzzing with talk of more consolidation should the proposed merger of US Airways and America West Airlines get past regulators.
With those airlines linking up to survive, some analysts are wondering about other airline pairings -- Continental Airlines and Delta Air Lines, for example -- that could help each other and their beleaguered industry stay afloat if they joined forces.
Industry specialists said the combinations that make the most sense are ones in which major airlines could fill gaps in their route maps. But analysts also cautioned that rapid consolidation could have disastrous effects in an industry where many companies barely have the cash to run their daily operations, let alone steer themselves through costly mergers.
''There are any number of different mergers that could make sense, but I will tell you that airline mergers are less pleasant to experience than watching sausage get made," said Henry Harteveldt, vice president of travel research at Forrester Research in San Francisco.
Specialists have predicted consolidation since the industry began its financial nose dive after the 2001 terrorist attacks, which frightened away passengers and triggered a tumult from which the airlines have yet to recover. More recently, high fuel costs have furthered the industry's fiscal weakness, and a new generation of low-fare start-ups has stolen more passengers and forced cutthroat price competition in what was already a saturated industry. What's more, the regulatory environment has changed, analysts say. The Justice Department that quashed a proposed merger between United Airlines and US Airways in 2001 today is more likely to approve alliances to save jobs and companies.
Indeed, some former competitors are turning to each other as allies -- or saviors.
US Airways and America West unveiled their merger agreement last month, nine months after US Airways filed for its second Chapter 11 bankruptcy since 2002. The deal, which still needs regulatory approval, could help bring US Airways back from the brink of a liquidation and would give both carriers more capital and an expanded, nationwide route network.
It's the same reason some analysts think more airline mergers might be coming.
''There are too many hubs in the United States," said Susan Donofrio, transportation analyst at Fulcrum Global Partners in New York. ''We need more consolidation to happen so the airlines can run more efficiently."
Delta Air Lines and Northwest Airlines would make good merger partners because their routes complement each other, she said. Delta has a strong presence on the East Coast and on transatlantic routes, while Northwest flies to Asia and to the West Coast.
Other potential pairs mentioned by analysts included a combined US Airways and America West acquisition of bankrupt United. ''You've got yourself the number one airline in the world at that point," said airline analyst Helane Becker of New York's Benchmark Co.
Harteveldt said Alaska Airlines might be an acquisition target, while discounters like AirTran Airways and Frontier Airlines could be forced into a partnership if the US Airways-America West deal puts more competitive pressure on them.
''If that helps [US Airways and America West] take some low fare traction because they have a better scope, that might make some of these other low-cost carriers say 'What can we do to combat this?' " he said.
Airlines declined to comment on specific potential partners yesterday, but none ruled out the possibility of a merger.
''We have said that we believe that the environment in the US needs to be more open to consolidation," said United spokeswoman Jean Medina. ''The domestic market is suffering from an excess of capacity and our international peers don't face that."
Still, United is focused on emerging from its bankruptcy on its own, not with a partner, she said.
Frontier spokesman Joe Hodas would not discuss any potential merger talks regarding the airline, but said the US Airways-America West deal would not change Frontier's strategy.
''I don't think that there's as much of a threat as you might think," he said.
Other airlines have found ways to partner without merging. Southwest Airlines invested $87 million in ATA Holdings Corp., parent of ATA Airlines last year, helping ATA pull itself out of bankruptcy protection and giving Southwest access to ATA gates and routes in cities where Southwest had little or no presence, such as Boston.
Despite all the talk, some specialists believe that a spate of airline mergers could hurt the industry, tying together several companies with drastically different identities and slim resources to help them through a rough transition.
''Should there be more consolidation? Only if you want to see massive liquidations," said Darryl Jenkins, a professor of business at Embry-Riddle Aeronautical University in Daytona Beach, Fla." It's one of the truly bad ideas out there."
Keith Reed can be reached at [email protected].
Unfortunately, airline mergers seldom provide the benefit the money guys claim. then again, it usually includes a big payout to the execs who "pulled it off", so who cares what the true benefit will be.
