Reader mail: What will airline mergers mean to consumers?
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Reader Todd writes:
Not much word from you lately about all the airline mergers in the news. What do you think will happen? Is this going to suck or rock?
Ha! Well, Todd, as I’ve said before, on the “suck - rock continuum,” I think mergers are closer to “suck” for consumers. (See here and here.) Sure you might get a few more potential destinations or routings for your flights, but the total number of flights is bound to be cut, and prices in turn are bound to rise. Prices are already rising, despite oil prices dropping significantly in recent weeks. (Neil Bainton has the fare hike play-by-play.) With less competition, it’ll be easier than ever to raise fares and make them stick.
I expect some sort of deal is coming. Last week saw quite a bit of airline merger news. AirTran raised its offer for Midwest by 18%. One day earlier, US Airways increased its offer for Delta by 20% — an offer which Delta continues to reject. But with Delta in bankruptcy, will the creditors say no to the sweetened deal?…
Adding more intrigue, it turns out that Delta has been playing the field, doing everything it can to avoid merging with US Airways. Delta has been discussing merger possibilities with Northwest and United. We knew United was fishing for a partner, and has confirmed discussions with Continental. Now we know Northwest is up on the block, too. Add another name to the mix.
For some arcana: If Northwest merges with anyone, then that makes it easier for Continental to make a deal. Northwest holds a “golden stake” in Continental, and those super-deluxe shares have a veto power clause attached to them. Continental can’t merge with anyone unless Northwest agrees. That is, unless Northwest merges first. Oh, the humanity! So right now, I’m guessing that United and Continental are rooting for a Northwest-Delta merger, so everyone can merge and all the CEOs can have their huge payday.
Now Congress is getting in on the game, too, with both houses planning to hold hearings on the effect of mergers on airfares, and on the economy.
The hearings will likely be a lot of grandstanding. But make no mistake: Industry consolidation will mean higher fares. And it’s not just me saying that, or a media-hungry congressman. It’s the airline chiefs themselves. Delta is talking about decreasing service and raising revenue. That’s not even a particularly veiled threat of raising fares.
I’m not about to predict which specific deals will close, but I am sure one or more will happen. But I’ll continue to root against them.
Related:
- Here we go again: Airline merger madness, back in the news
- Reader mail: What’s in the cards for a United merger?
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January 15th, 2007 at 12:00 pm |
I posted before as bullish on airline mergers, and I still am with some exceptions. I think the most beneficial mergers will be between airlines that have very little overlap in routes. Delta/US Airways is a no but Delta/United is a yes in that regard. Also, I am bearish on Delta/US Airways due to the proximity of their hubs, while a Delta/United merger would create hubs across the country and allow for reduced pressure at some of the major hubs (i.e. Chicago transfer passengers to Cinncinnati, Denver transfer passengers to Salt Lake City, etc)
Further, beyond consideration for route overlaps I would hate for an airline like Delta, which still has a decent relationship with its workers, to merge with Northwest, which always seems to be having some spat with one of their unions. Delta is not tops in passenger service either, but it is higher in my opinion than US Airways was or will be in the near future. US Airways wants the Delta name for the same reason SBC bought AT&T, for the prestige attached to it. United might be losing some of the premier luster (removing pretzels), but I think they would be a better merger partner for Delta than US Airways or Northwest. Especially now that United has the DC-Beijing, which couples well with Delta’s Atlanta-Europe
Of course the discussion between Northwest and Delta does not necessarily mean they will merge. Both being part of the Skyteam, they could instead seek to deepen their partnership as a defense against mergers since a deeper partnership might offer many of the benefits of a merger without having to deal with as much Congressional backlash.
January 15th, 2007 at 7:59 pm |
i think Delta will accept the us airway offer but they wanna take thier sweet time hoping US airway woul rais the offer another 20%.
The reason why Delta would accept the offer because the bad management so it will be a great chance for this managemenet to throw this load away since they are already in bankrupcty as long as they are getting thier huge pay.
I just feel sorry for Delta employees whats gonna happen to alot of them.
January 31st, 2007 at 12:42 pm |
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November 19th, 2007 at 10:28 pm |
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