U.S. airline merger talks could resume in '09
- Thread starter 767jetz
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Back on topic. Does anyone think a merger in this economy would be beneficial to UAL? With credit this tight and airlines in such a precarious position would anyone be goofy enough to fund something like that, with this airline or any other?
There are still too many seats chasing too few passengers. A cut in seats, flights and hubs are necessary for the long term viability of the industry.
Easier said than done. The airlines have cut out an enormous amount of capacity. AA itself went from over 900 aircraft to about 650 today and that number will fall even further. They have severely reduced STL and SJU. US abandoned it's PIT hub and is making large cuts (if not eliminating) it's LAS hub. The problem with the airlines is that they have a high percentage of fixed costs that cutting capacity increases cost per seat mile because your spreading less capacity over the same fixed cost amount. The more you cut, the more your cost per unit goes up. Additionally, aircraft and facilities are leased for long terms, 10, 15, 20 years. So even if a hub is abandoned as a result of capacity reduction they still have to pay the amounts agreed to in the lease. Another factor is the economy; one would think that at a certain point in the future, the economy will recover which will stimulate demand thus filling the seats at higher ticket prices. The problems of this industry can be easily solved in two ways: 1. Mergers, having fewer airlines flying will allow them to charge ticket prices that covers the expenses of producing the product and an additional amount for profit. 2. Failure. The failure of a large airline would more than likely remove enough capacity to enable the survivors to charge higher fares thus leading to profitability.
This thread was supposed to be about possible mergers for United. Since it has turned into an AA/CO snipe fest, it is closed.
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