17 December 2009

Prescription for future airline health: mergers

A good case could be made for further US airline consolidation, says the CEO of Delta Airlines, the world’s largest, but there’s a question whether the Obama administration would allow it.

''If a transaction were to occur, economics should prevail,'' said Delta CEO Richard Anderson. ''I think the case can be made ultimately, but it remains to be seen what this administration's take will be.''

He did not say whether Delta has an appetite for another acquisition.

Rumors have flown about Delta acquiring JetBlue, among others, but no merger deals have been completed since Delta bought Northwest.

The airline said it projects it will end 2010 with $5.4 billion in unrestricted liquidity, up from the $5.3 billion it expects to end this year with.

Delta is targeting $600 million in new cost savings and productivity enhancements next year. It also plans to make a big investment next year in customer servicing training across the airline.

In other airline news, analysts were predicting some improvement in business travel but warned that increased fuel prices could thwart any recovery.

"What we stated was we are not planning for a big return of business travel next year," said Laura Wright, Southwest’s chief financial officer and senior vice president for finance. "To put that in context: we don’t know. We don’t have a long-term view of the booking curve."

She added:

"As we all know, the messages are really mixed on the economy, and employment numbers are still bad. "We’re assuming business travel is not just going to rebound next year. If it does come on stronger than we expected, we’ll be thrilled."

As for airline prices, consumers should not be surprised to see an upturn.

Airline prices will have to go up to regain profitability, suggests an ITB World Travel Trend report. Specifically, the report said airlines would need to "significantly adjust their ticket prices."

"Many airlines slashed prices on popular routes at the outset of the economic crisis to try to fill planes, but recent research has suggested that careful capacity management and a slow pick-up in demand has reduced the number of empty seats," the report says.

By David Wilkening