Airline Deals Left at the Gate
May 28 2008
As United-US Airways talks stumble, American sets the course.
The new wave of airline consolidation has been grounded.
After Delta and Northwest hooked up last month, hopes ran high that it would trigger a series of deals that would reduce the number of passenger seats and cut costs.
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Micheline Maynard and Andrew Ross Sorkin of the New York Times report that there has been virtually no contact between the airlines in recent days as United's board and chief executive, Glenn Tilton, have raised questions about a merger.
Failing to reach an agreement before Memorial Day, the Times says, means that there is not enough time to have merger-friendly Bush administration regulators review it. The uncertainty over who may be in the White House next year may further delay other airline deals.
The argument for mergers, with oil prices higher than $125 a barrel, is obvious: Airlines cannot survive unless they can cut costs and raise fares. And the new Open Skies Treaty will introduce new competition from European airlines. The U.S. industry could lose as much as $9 billion this year.
Other deals or alliances are still possible. United has been talking with Continental Airlines, which, in turn, has been talking about a possible alliance with American Airlines and British Airways, Reuters has reported.
For its part, American, the biggest U.S. airline until the Delta-Northwest merger is completed, has apparently decided that it cannot wait for a merger or alliance.
Last week, American said that it would cut its domestic capacity by as much as 12 percent and will start charging a $15 fee on passengers' checked bags. It will also raise fees for a range of other services, from reservation services to transporting pets and oversize bags.
American may be the new model for an increasingly desperate industry. Douglas McIntyre on 24/7 Wall St. says: "In a merger, that work of making a deal and going though the time-consuming effort of combining two companies could take months. No one in the industry has that kind of time. At least if a carrier goes it alone, it can make decision about how to bleed itself quickly."
