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Next to Disappear? Potential U.S. Airline Mergers Analyzed

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Next to Disappear? Potential U.S. Airline Mergers Analyzed

Next to Disappear? Potential U.S. Airline Mergers Analyzed
April 09
21:39 2015

MIAMI — Eastern. TWA. Braniff. Northwest. Pan Am. There are more defunct airlines in US history than there are current passenger transport carriers, redolent of a much-missed time gone by. Many of them make up the three megacarriers that now dominate the US air travel market: American, Delta and United.

American Airlines is celebrating this heritage with retro amenity kits that feature historical branding from airlines that it merged with or were acquired into AA or its predecessors. The list reads like a history book of the golden age of air travel: AirCal, Allegheny Airlines, America West, Piedmont Airlines, PSA, Reno Air, and of course US Airways; plus, the retro pre-Vignelli American Airlines brand itself.

Which airlines will make up the retro amenity kits of the future, sized to fit whatever the must-have personal electronic device of the 2030s or 2040s is? How will competition concerns — already a reality for the big three and their passengers — fit in? And what airlines will fade into obscurity?

American, Delta and United, at this stage, appear too large for further consolidation among the three brands. Even the US’ indolent competition regulators must balk at a further round of merger along the lines of Delta-Northwest, United-Continental and American-US Airways. `

In terms of US carriers, that leaves Southwest, jetBlue, Alaska, Spirit, Frontier, Hawaiian, Allegiant, Virgin America and Sun Country.

It’s hard to see Southwest being a viable merger candidate for any of the majors, and its Boeing 737-only fleet strategy already proved too attractive to retain AirTran’s Boeing 717 aircraft after that merger. Southwest also attracts fierce loyalty from its fans, and nearly as much derision from frequent flyers of the full-service airlines with which it is in competition. An option could come from an acquisition of smaller Sun Country, a fellow 737-only operator, but Sun Country’s 21 aircraft would just be a drop in the bucket compared with Southwest’s nearly 700 737 examples.

JetBlue is the next largest airline in the US, and despite its recent passenger experience tack towards the demands of Wall Street it is in a relatively strong position, although firmly in the minor leagues in terms of size. The only problem jetBlue frequent flyers really have is that their airline’s independence means that its benefits are largely restricted to jetBlue-only flying. As a tradeoff for 2-4” extra legroom in coach compared with the big three, that’s a deal many passengers are only too happy to take, particularly in the age of devaluing loyalty programs from American, Delta and United. It’s hard to see how jetBlue’s unique product offerings fit well with any other airline brand.

Merger and acquisition rumours continue to swirl around Seattle-based Alaska Airlines. Its well-publicised ongoing fight with frenemy Delta for the Seattle traveler could end in one of three ways: remaining independent, a takeover by Delta to consolidate its position, or a takeover by American or United despite those carriers’ current non-ideal position consolidating previous mergers. Despite operating a Boeing 737 fleet that all three majors also use, it’s also hard to see a way for an airline Alaska’s size to merge into one of the big three from a competition point of view.

jetblue-a320-a321

The US’ two main ultra-low-cost carriers, Spirit and Frontier, seem like they’d be a match made in… well, not exactly heaven. Of similar size, similar business model and similar A320 family fleets, the only questions in the prenup would be the price and which airline got to keep their livery.

Hawaiian Airlines’ incumbency in the Pacific (not to mention much-coveted international slots at Japanese airports) and fleet commonality with Delta (A330s, 717s and A321s) and American (A330s and A321s) as well as the relatively small level of route overlap with the other big three make it a reasonable candidate for merger.

Allegiant’s fleet strategy — buy ‘em old, run ‘em hard — means its assets aren’t especially attractive for any airline operating a different model to its sunbird, non-daily service, occasional flyer pattern.

hawaiian-airlines-acro-boeing-717-passengersAnd thus to Virgin America, everyone’s favourite target for merger speculation. Operating a fleet of Airbus A320 aircraft common to all three of the majors, with an eight year old hard product that dates to 2007, and a profitability record that is unenviable, its future as a standalone carrier is certainly in doubt. 25 percent owner Virgin Group is by no means averse to other carriers owning its airlines, either in the UK, Australia or Malaysia. Delta now holds 49 percent of Virgin Atlantic and a metal-neutral joint venture with Virgin Australia. Will CEO Richard Anderson make it three for three?

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John Walton

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