Airlines fly in formation to beat rough weather
UAL’s United Airlines and Continental Airlines are exploring a possible combination, while Midwest Air Group has turned down an unsolicited merger proposal from AirTran Holdings, parent of AirTran Airways.
By Agencies |
CHICAGO: A flurry of confirmed and reported talks among airlines may signal merger mania within the struggling industry, though analysts question whether consolidation is a sure — or even a good — thing.
UAL’s United Airlines and Continental Airlines are exploring a possible combination, while Midwest Air Group has turned down an unsolicited merger proposal from AirTran Holdings, parent of AirTran Airways.
All this activity comes on the heels of the recent hostile $8.67 billion takeover bid that US Airways Group made for Delta Air Lines, whose top executive has rebuffed the offer.
The preliminary talks between United and Continental were reported late Tuesday by The Wall Street Journal and The New York Times, though no specifics were given and both papers cautioned that a deal was far from certain. AirTran had made a $200 million offer to Midwest’s management. Midwest told AirTran a merger was not in its best interest.
A United-Continental pairing could face significant obstacles, since Northwest Airlines may be able to stop it under a 2000 agreement with Continental. In that pact between airlines allied in a code-share agreement, Northwest received a “golden share” of Continental — giving it the power to halt any potential acquisition of the Houston-based airline — in exchange for letting Continental buy back some of its stock that Northwest held.
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But with US airlines strongly interested in consolidation, it’s possible that differences could be resolved in separate deals. Airline consultant Michael Boyd said a United-Continental combination, or any other combination for that matter, would not be good for consumers, as it would reduce competition. He described any offer by United as an effort to make “fast money”.“Glenn Tilton has called everyone looking for a date,” Mr Boyd said, referring to United’s CEO. “He doesn’t want to run an airline, he wants to merge it.” Indeed, Mr Tilton on Tuesday spoke up again as a strong advocate of US airline mergers, telling analysts in Chicago that consolidation is “good and overdue for the industry.”
“We are not waiting for opportunities to come to us simply because we haven’t identified to you which one works best,” Mr Tilton said. However, he declined to tip his hand about strategy or discuss any merger efforts under way involving his carrier.
United declined to comment on the reports; a Continental spokesman did not immediately return a phone call seeking comment. Mr Tilton, among other industry officials, believes mergers would boost airlines through cost-cutting and increased revenues.
But Kevin Mitchell, the chairman of the Business Travel Coalition, said if such a “tsunami” of airline consolidation were to occur, the repercussions for fliers would be disastrous, in that fares would surely rise as competition waned.
Other merger proposals would follow as sure as the sun rises in the east,” he said.
“What’s more, these potential transactions represent a near-term fix to the industry’s difficulties and do not address systemic profitability problems and root causes.” While airlines have rebounded from the troughs they fell into just a few years ago, mainly by laying off workers and reducing operating costs, they still must battle the high cost of fuel.
Many industry analysts and consultants believe consolidation would help in this environment, by enabling carriers to cut overlapping routes and reduce available seat capacity, making it easier to raise fares.
Others aren’t so sure such combinations make sense, noting the industry’s troubled history at getting co-operation from labour groups, not to mention the difficulties of bringing different fleets, maintenance schedules and cultures under one umbrella. “You’re dealing with a lot of emotion here that may not make sense in the light of day,” Mr Boyd said.
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