VIII: ---“Mergers and Acquisitions- a more logical and orderly method of reducing Industry overcapacityâ€---
There already exists, in this Nation’s free Market, a vehicle for methodically accomplishing change of control, within Industries and among businesses. A process which inflicts the least harm upon this Nation’s working Citizens as well as the least burden upon the taxpayer-supported Local, State and Federal economies and social programs. It’s commonly called “MERGERS and ACQUISITIONSâ€.
But are there really added benefits for the local Community, the Nation and the Taxpayer? ---Yes.
A lesser, large-scale-devastation, in employment and continuity of services will save hundreds of Millions, if not Billions, in the adverse domino effect inflicted upon already stressed Local, State and National Social Programs.
Nearly every Senior Executive of Nearly every Major Airline, at one time or another, has spoken of the logical benefits of a truly deregulated Industry. An industry where mergers in the Transportation Industry would be permitted with less cumbersome regulatory red-tape.
However, The Executive’s voices, have become silenced most recently on the topic of M&A. The correct time for these Mergers is perhaps, NOT NOW. It is now, --No longer affordable.
Because of Government interference, the most opportune time, has temporarily passed, where Airline Managements recognized the effective use of Mergers, as a useful tool in becoming more competitive against the threat of the Point-to-Point, Low Cost Airline.
For at least the near term, it is has become economically impracticable to consider M&A, primarily due to the inability of, even the most healthy Airline, to sustain the necessary critical transitional period of adjustment and realignment, until such time that long-term benefits may reach fruition.
In this Industry, And at this point in time, a poor man can no longer spare a nickel to save a dollar! Perhaps we are finally realizing, too late, that a change in the Industry Makeup, by way of Mergers and Acquisitions may have been a more reasonable alternative to the Billions lost and the Billions spent by taxpayers on the Size and Scope of Legacy Airline Failures. This is not to mention the missed opportunity for benefit in safety and continuity to the traveling public along with the added security and durability of one of this countries most vital National Resources –Air Commerce. It would have, perhaps, become a more logical and orderly method of reducing Industry Overcapacity without the economic devastations we have since witnessed as a consequence of Free-Market interference by Industry Regulators.
---Alfred Kahn- An irrational exuberantâ€---
The Airline Deregulation Act of 1978 was a most dramatic event in the history of our industry. It was an evolutionary political initiative inspired by Alfred E. Kahn, a Political Economics Professor, Presidential Economic Adviser, and Chairman of the Civil Aeronautics Board.
Alfred Kahn concludes, “Airline deregulation has worked. It would be ironic if, by misdiagnosing our present discontents, we were to return to policies of protectionism and centralized planning at the very time when countries as dissimilar as China, the Soviet Union, Chile, Australia, France, Spain, and Poland are all discovering the superiority of the free market.â€
Sure... those Countries may be exploring and experimenting with the free market concept as it pertains to the Airline Industry, but they are hardly mastering nor completely embracing this concept. In any disguise, there’s nearly as much Monopolistic Nationalism as there ever was in these Countries.
Speaking of Nationalism. While Kahn wasn’t looking, it appears that Italy is already recognizing the destabilizing effects of deregulation and cut-throat pricing:
–“Italy orders airlines to curb fare dealsâ€; By Kevin Done, London, Published August 8 2004; - AlitaliaItaly has ordered leading European airlines, including British Airways and Germany's Lufthansa, to stop offering lower fares than Alitalia, the struggling majority state-owned Italian flag carrier, on competing long-haul services. The move by the Italian government comes as it seeks to prevent Alitalia collapsing into bankruptcy by agreeing an emergency state-guaranteed €400m ($493m) loan to the airline.
---“Unbelievably, they encourage and support the destruction of American enterpriseâ€---
Some analysts espouse the benefits of Deregulation are, just now, becoming evident. These observers watch the spiraling economic dive of Legacy Carriers and their struggle to remodel their business plans. Network Airlines (the Apples) grope for a workable competitive strategy which will help shield their market share against the invasive Low Cost Competitors (the Oranges).
The problem however is International and Transcontinental Commercial Services, rationally, depend upon the hub-and-spoke business model for network feed. Legacy Airlines must necessarily use larger, Jumbo type Aircraft on these longer routes to optimize efficiencies over greater stage lengths. Stage lengths which, may nearly span, half the globe. The cost associated with varied fleet types as well as the cumbersome support and services necessary to, operationally, turn-around these giant aircraft for subsequent flights are immensely greater than those costs associated with the smaller, more quickly-turned common fleet type aircraft, such as those flown by the low cost carriers.
Additionally, and by the nature of the Legacy Business Model, more remote regions of the country are served through the hub-and-spoke concept. In contrast, the Low Cost Carrier, Point-to-Point Business Model relies on serving the higher density markets which were once the bread-and-butter of the Traditional Carriers. It’s tantamount to having Low Cost Carriers scraping the icing off the economic cake, leaving the less satisfying revenue remains for Legacy Airlines.
As Legacy Carriers reach out to the small remote communities at the end-of-the-line stations around the Country, they bring vital Air Commerce to areas of the Nation where there is otherwise little incentive to serve. Its costly. The yields are low. However marginal profits can be achieved with one particular kind of Business Model. That is the Hub-and-Spoke Model. These Network Carriers gather travelers in these remote regions and bring them into the busy Mainstream of their Hubs located in high density markets where these travelers are united with the more lucrative, high yielding point-to-point service between other connected high density markets.
As the LCCs dine strictly on these prime high density Markets, the Legacy Carriers lose the necessary economic vitality of Market Share. And with the loss of economic vitality, it becomes less feasible for Legacy Carriers to serve the remote communities of our Nation.
In order to maintain the necessary economic vitality and continue this essential Air Commerce service to all the remote corners of this Nation, the Legacy Airlines must explore alternative business strategies. Consolidation may be one such alternative, as a logical step in a free and unregulated industry.
Without consolidation to resolve destructive, costly and wasteful duplication of redundant services, Legacy Airlines have already begun to reduce the number of smaller hubs within their own system and abandon the smaller communities with less frequency or have, since, begun to provide a lesser quality of service. In some cases, small communities have, altogether, lost vital Air Commerce to the diverse choices of destinations they once enjoyed.
Since deregulation, however, Alfred Kahn along with Federal Regulators have persistently and vigorously opposed the exercising, by Network Carriers, such business strategies (M&A) which would have facilitated a more orderly and controlled reduction in industry capacity. They have vigorously opposed attempts by the Network Carriers to streamline the overcapacity and wasteful redundancy. Additionally, they have made code-sharing partnerships between network carriers an extraordinarily cumbersome process of regulatory approval.
Instead of supporting the cooperative business alternative of Mergers and Acquisitions as the logical step to orderly reduce wasteful and self-destructive industry over-capacity; These advocates of deregulation, dispassionately, cheer the human devastation of failure of select Airlines. Unbelievably, they encourage and support the destruction of American enterprise as an appropriate alternative in the resolution of over-capacity.
There already exists, in this Nation’s free Market, a vehicle for methodically accomplishing change of control, within Industries and among businesses. A process which inflicts the least harm upon this Nation’s working Citizens as well as the least burden upon the taxpayer-supported Local, State and Federal economies and social programs. It’s commonly called “MERGERS and ACQUISITIONSâ€.
But are there really added benefits for the local Community, the Nation and the Taxpayer? ---Yes.
A lesser, large-scale-devastation, in employment and continuity of services will save hundreds of Millions, if not Billions, in the adverse domino effect inflicted upon already stressed Local, State and National Social Programs.
Nearly every Senior Executive of Nearly every Major Airline, at one time or another, has spoken of the logical benefits of a truly deregulated Industry. An industry where mergers in the Transportation Industry would be permitted with less cumbersome regulatory red-tape.
However, The Executive’s voices, have become silenced most recently on the topic of M&A. The correct time for these Mergers is perhaps, NOT NOW. It is now, --No longer affordable.
Because of Government interference, the most opportune time, has temporarily passed, where Airline Managements recognized the effective use of Mergers, as a useful tool in becoming more competitive against the threat of the Point-to-Point, Low Cost Airline.
For at least the near term, it is has become economically impracticable to consider M&A, primarily due to the inability of, even the most healthy Airline, to sustain the necessary critical transitional period of adjustment and realignment, until such time that long-term benefits may reach fruition.
In this Industry, And at this point in time, a poor man can no longer spare a nickel to save a dollar! Perhaps we are finally realizing, too late, that a change in the Industry Makeup, by way of Mergers and Acquisitions may have been a more reasonable alternative to the Billions lost and the Billions spent by taxpayers on the Size and Scope of Legacy Airline Failures. This is not to mention the missed opportunity for benefit in safety and continuity to the traveling public along with the added security and durability of one of this countries most vital National Resources –Air Commerce. It would have, perhaps, become a more logical and orderly method of reducing Industry Overcapacity without the economic devastations we have since witnessed as a consequence of Free-Market interference by Industry Regulators.
---Alfred Kahn- An irrational exuberantâ€---
The Airline Deregulation Act of 1978 was a most dramatic event in the history of our industry. It was an evolutionary political initiative inspired by Alfred E. Kahn, a Political Economics Professor, Presidential Economic Adviser, and Chairman of the Civil Aeronautics Board.
Alfred Kahn concludes, “Airline deregulation has worked. It would be ironic if, by misdiagnosing our present discontents, we were to return to policies of protectionism and centralized planning at the very time when countries as dissimilar as China, the Soviet Union, Chile, Australia, France, Spain, and Poland are all discovering the superiority of the free market.â€
Sure... those Countries may be exploring and experimenting with the free market concept as it pertains to the Airline Industry, but they are hardly mastering nor completely embracing this concept. In any disguise, there’s nearly as much Monopolistic Nationalism as there ever was in these Countries.
Speaking of Nationalism. While Kahn wasn’t looking, it appears that Italy is already recognizing the destabilizing effects of deregulation and cut-throat pricing:
–“Italy orders airlines to curb fare dealsâ€; By Kevin Done, London, Published August 8 2004; - AlitaliaItaly has ordered leading European airlines, including British Airways and Germany's Lufthansa, to stop offering lower fares than Alitalia, the struggling majority state-owned Italian flag carrier, on competing long-haul services. The move by the Italian government comes as it seeks to prevent Alitalia collapsing into bankruptcy by agreeing an emergency state-guaranteed €400m ($493m) loan to the airline.
---“Unbelievably, they encourage and support the destruction of American enterpriseâ€---
Some analysts espouse the benefits of Deregulation are, just now, becoming evident. These observers watch the spiraling economic dive of Legacy Carriers and their struggle to remodel their business plans. Network Airlines (the Apples) grope for a workable competitive strategy which will help shield their market share against the invasive Low Cost Competitors (the Oranges).
The problem however is International and Transcontinental Commercial Services, rationally, depend upon the hub-and-spoke business model for network feed. Legacy Airlines must necessarily use larger, Jumbo type Aircraft on these longer routes to optimize efficiencies over greater stage lengths. Stage lengths which, may nearly span, half the globe. The cost associated with varied fleet types as well as the cumbersome support and services necessary to, operationally, turn-around these giant aircraft for subsequent flights are immensely greater than those costs associated with the smaller, more quickly-turned common fleet type aircraft, such as those flown by the low cost carriers.
Additionally, and by the nature of the Legacy Business Model, more remote regions of the country are served through the hub-and-spoke concept. In contrast, the Low Cost Carrier, Point-to-Point Business Model relies on serving the higher density markets which were once the bread-and-butter of the Traditional Carriers. It’s tantamount to having Low Cost Carriers scraping the icing off the economic cake, leaving the less satisfying revenue remains for Legacy Airlines.
As Legacy Carriers reach out to the small remote communities at the end-of-the-line stations around the Country, they bring vital Air Commerce to areas of the Nation where there is otherwise little incentive to serve. Its costly. The yields are low. However marginal profits can be achieved with one particular kind of Business Model. That is the Hub-and-Spoke Model. These Network Carriers gather travelers in these remote regions and bring them into the busy Mainstream of their Hubs located in high density markets where these travelers are united with the more lucrative, high yielding point-to-point service between other connected high density markets.
As the LCCs dine strictly on these prime high density Markets, the Legacy Carriers lose the necessary economic vitality of Market Share. And with the loss of economic vitality, it becomes less feasible for Legacy Carriers to serve the remote communities of our Nation.
In order to maintain the necessary economic vitality and continue this essential Air Commerce service to all the remote corners of this Nation, the Legacy Airlines must explore alternative business strategies. Consolidation may be one such alternative, as a logical step in a free and unregulated industry.
Without consolidation to resolve destructive, costly and wasteful duplication of redundant services, Legacy Airlines have already begun to reduce the number of smaller hubs within their own system and abandon the smaller communities with less frequency or have, since, begun to provide a lesser quality of service. In some cases, small communities have, altogether, lost vital Air Commerce to the diverse choices of destinations they once enjoyed.
Since deregulation, however, Alfred Kahn along with Federal Regulators have persistently and vigorously opposed the exercising, by Network Carriers, such business strategies (M&A) which would have facilitated a more orderly and controlled reduction in industry capacity. They have vigorously opposed attempts by the Network Carriers to streamline the overcapacity and wasteful redundancy. Additionally, they have made code-sharing partnerships between network carriers an extraordinarily cumbersome process of regulatory approval.
Instead of supporting the cooperative business alternative of Mergers and Acquisitions as the logical step to orderly reduce wasteful and self-destructive industry over-capacity; These advocates of deregulation, dispassionately, cheer the human devastation of failure of select Airlines. Unbelievably, they encourage and support the destruction of American enterprise as an appropriate alternative in the resolution of over-capacity.
