19 February 2008

Airline mergers could mean bigger cattle cars

The wave of much-publicized airline mergers could mean turbulent skies ahead for passengers who might find higher tickets prices and fewer options for travel, according to news reports from analysts and consumer groups.

'Those predictions come as Delta Air Lines and Northwest Airlines are believed to be inching closer to a merger agreement that could create the world's largest air carrier and spur other domestic carriers to combine,' said The Houston Chronicle.

At the same time, Houston's Continental Airlines is also in talks with both United and American airlines, a person familiar with the situation told the newspaper.

Analysts see a United-Continental merger as the most likely deal to follow a Northwest-Delta agreement.

"The crux of the matter is whether they will try refocusing on customer service or on gobbling up money and just push you into a bigger cattle car," said Shaman Mallick, vice president of Travel Lifestyles Corp., a travel agency in Houston.

Airlines considering mergers may want to strike deals soon to increase the odds of winning antitrust approval under a business-friendly Bush administration, analysts said.

If both Delta-Northwest and United-Continental mergers go through, the number of major hub-and-spoke domestic air carriers would go from six to four, with the new Delta-Northwest and United-Continental giants controlling about 37% of the domestic air travel market between them.

American Airlines, the nation's largest, owned 15% of the domestic market as of November, according to the US Transportation Department.

Merger advocates say consolidation will help airlines reduce soaring costs, become more efficient and offer consumers more options.

"The case for change and a case for consolidation in this industry in this country is inarguable," United CEO Glenn Tilton said this month during a presentation to investors.

Proponents of deals say the free market would keep merged carriers from taking advantage of consumers.

Low-fare carriers, including Dallas-based Southwest Airlines and New York's JetBlue, have had aggressive growth in recent years, forcing major carriers to keep ticket prices low to compete.

But consumer groups say merged airlines would gain the upper hand because they would control more gates at airports, effectively limiting competition in certain markets. Regulators, if they approve any deal, must force merged carriers to relinquish control of some of those gates, they said.

In addition, consumer groups say past airline mergers not only have made customer service worse, they have failed to keep the airline industry from slipping back repeatedly into periods of turmoil.

Last month, nearly 75% of corporate travel managers said in a Business Travel Coalition survey that they expect higher fares, and more than half believe service will decline if airline mergers go forward.

Report by David Wilkening