As a whole, U.S. airlines have been able to orchestrate a remarkable turn-around in recent years. They have lagged behind European competitors—not to mention fast-growing carriers in Asia, the Middle East and Latin America—operating older fleets with uncomfortable seats and mediocre inflight services. But that is beginning to change. As their financial results have improved, U.S. airlines are beginning to invest in renewing old fleets. And offerings in long-haul premium cabins of United and American, for example, are again competitive with those of their European counterparts, which are now struggling financially and cutting back on service.
However, while these improvements are certainly the result of capacity discipline and cost-reduction—in other words, consolidation—the better financial performance may not be primarily due to the mergers. Chapter 11 bankruptcy protection has proven to be a very efficient restructuring tool for the big U.S. legacy carriers, to the envy of their international competitors. Achieving the same kinds of benefits by merely combining two carriers requires a much more tedious effort spanning years.
JetBlue Airways President/CEO David J. Barger says the merger is good news for his carrier and the U.S. airline industry as a whole. “It’s a consolidating industry, which is rationalizing capacity with leaders who are focused on return on invested capital for our shareholders,” he said during a Feb. 13 address to the Royal Aeronautical Society’s Washington branch. “This capacity rationalization is going to be good for the industry and very, very good for JetBlue.”
Barger notes that the U.S. airline industry has not, in aggregate, made a single penny of profit in its 99 years of existence. He hopes the American-US Airways tie-up will usher in a more profitable era. “Somebody asked me, ‘Are you looking for the platinum age?’” he says. “We’ll take the silver age.”
He adds that the consolidation and resulting antitrust reviews could create some “disruption opportunities” that would give JetBlue more slots at lucrative airports such as Ronald Reagan Washington National Airport.
Among the skeptics of the American-US Airways deal is Virginia-based consultant George Hamlin, who does not think the merger was essential to US Airways’ survival in a sea of bigger competitors. He argues that increasing the size of operations will not necessarily produce cost efficiency. US Airways has a better cost structure than American, Delta and United when adjusted for stage length, Hamlin says, while Southwest Airlines’ is better than any of the four legacy carriers. “Big is not necessarily better,” he notes.
Jenks thinks otherwise. If not essential, the merger certainly represents the “best possible outcome” for US Airways, he says.
Although the merger must still pass regulatory muster, few foresee major problems. The Justice and Transportation departments have to approve the pairing, but in recent years they OK’d the Delta-Northwest and United-Continental mergers, both of which had more overlaps.
Whether the tie-up represents sound policy is another matter. Consumer advocates worry about higher fares, but some economists say that airline stability—noticeably lacking over much of the U.S. industry’s history—will prove to be the greater good. The financial community welcomes this merger and industry consolidation as a whole, though passengers are left with fewer choices. But all the previous mergers did not lead to raising fares: U.S. travelers are paying less for tickets than in 2000. And Parker asserts that having three strong network carriers will give many U.S. fliers more options, not fewer.
Government regulatory authorities could still ask the merged carrier for certain concessions, if they determine that its combined marketshare would be too large. It might be required to divest some takeoff and landing rights at certain slot-controlled airports, such as Washington’s National, where the merged carrier would dominate.