US Airways merger failure may lead to fewer in future
With US Airways dropping out on its $8.9 billion bid to buy Delta, more proposed airline mergers may also fall by the wayside, according to industry analysts.
The recent momentum toward airline consolidation could come to a quick end, say analysts.
“Many experts now believe that the merger talk will again quiet down without a US Air-Delta deal shaking up the industry status quo,” wrote CNNMoney.com.
“I would say it’s now much less likely that we’ll see significant consolidation in 2007,” said Jim Corridore, airline analyst for Standard & Poor’s in New York. “I had thought it was imminent. Now, I think it’s still possible but not really in the cards.”
US Airways attempted unsuccessfully to force a merger with reluctant Delta executives who said they believed their best chance at survival was to avoid the hostile takeover.
Airline investors had hoped a US Airways-Delta deal would lead to more takeovers in the sector, which would cut competition and give surviving carriers an opportunity to raise fares.
Airline shares dropped across the board, even after US Airways and discount rival JetBlue Airways reported quarterly profits, as oil prices jumped, leading to higher costs.
Delta’s management has resisted US Airways, saying that Delta is worth more as a stand-alone company and that a merger presents serious antitrust violations. Delta says it had lined up six major Wall Street banks for USD$2.5 billion in financing when it exits bankruptcy later this year.
Delta claimed that support by the banks indicated Wall Street approval of its plan to exit bankruptcy as a stand-alone carrier.
Northwest this week became the latest airline to reiterate plans to go it alone, with CEO Doug Steenland saying the Minnesota-based carrier has no plans to merge in 2007, according to the AP.
If there was a winner in the development, however, it was air passengers. They were the “ones who get hurt when it comes to fares and customer service,” said MSNBC.
Had the move through as planned by US Airways, travelers could have expected domestic fares to rise fastest on smaller, less-traveled routes, and then rise gradually on busier, more competitive legs, analysts say.
Business travelers would probably have been the biggest losers as corporate
purchasing agents lost their bargaining power with fewer airlines to deal with.
Report by David Wilkening
David
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