MIAMI — As American Airlines and US Airways move ahead with a merger announced on February 13, 2013, AirwaysNews is looking at the future of airline mergers, asking industry observers what may be ahead. When the merger was first announced, then-US Airways CEO Doug Parker said it would be “the last major piece needed to fully rationalize the industry.”
Harlan Platt, a finance professor at the D’Amore McKim School of Business at Northeastern University, says there won’t be any further airline mergers. “I’d say that the chance for another airline merger is extraordinarily slim, because I feel the Department of Justice and the FTC made a mistake allowing mergers including Delta-Northwest and United-Continental,” he said.
The only one that should have happened was Delta and Northwest, said Platt. “At the time, Northwest was not viable and had terrible labor relations,” he said.
But the United-Continental and American-US AIrways mergers have changed the airline industry, said Platt. “It has done from an industry that was moderately competitive and making some money to one that is making much more money, but running as an oligarchy or even a monopoly in some markets,” he said. “Airlines have reduced their fleet sizes, cut capacity and are charging more for incidentals outside of the basic fare.”
“I feel that in the future, there’s more of a likelihood that a new carrier will enter the market rather than consolidation,” said Platt, citing JetBlue as an example.
Reid Appleby, recently named vice president at Alexandria, Va.-based consultancy Campbell-Hill Aviation Group, LLC, worked at American Airlines for 28 years in a variety of management roles, including network planning, route forecasting and air service development. “I suspect what Parker was actually referring to in his merger statement was a reference to the six remaining legacy carriers,” he said. “When Delta-Northwest and United-Continental merged, the last natural pairing was American-US Airways. So it makes sense in rounding out the legacy airlines.”
But it does leave open the question of what happens to the next tier of airlines flying jets, like JetBlue, Virgin America, Spirit Airlines, Frontier Airlines and Alaska Airlines, said Appleby. “In that realm, there’s still a possibility of a combination or two. I don’t think any are imminent, but there has been speculation that there could be a merger in the ultra low-cost carrier realm, the domain of Spirit and Frontier,” he said.
Stephen Carbone worked at FedEx during the time it merged with Flying Tigers, worked at the NTSB as an aircraft accident investigator and is the author of “JetBlast.” He feels that the dust still needs to settle with the mergers that have already happened before more happen.
“One thing that happens during a merger is that it takes a long time for the process to work. Tedious is the word to describe it,” said Carbone. “There are a lot of planets that need to align, like union contracts, fleets and routes, before you get everything working.”
So with that, Carbone doesn’t see another merger for at least a decade. “It’s not just the airlines that need to align, but it’s also the industry. We’re seeing hostility over the Open Skies agreement with Gulf carriers versus the big three U.S. airlines,” he said. “Airlines need to know where they’re standing to compete against global carriers, and there has to be more realignment globally before anything happens domestically.”