Airline Mergers

Several of the major airlines are in discussions with each other to consolidate operations. Currently the match-ups seem to be Northwest merging Delta and United merging Continental. If the union issues can be worked through, these mergers should go through. I don't see the current administration objecting too much since stronger airlines means less government help. After the 2008 election, these mergers might have a harder time getting approved.

After the events in 2001, the government had to step in to offer emergency aid and low rate loans to keep most airlines aloft (sorry for the pun). By September 2005, 4 of the top 7 carriers in the US were flying under bankruptcy protection (US Airways, United, Northwest & Delta). On September 27 2005, America West Holding finalized its merger of US Airways Group starting this round of consolidation.

There will be winners and losers in this round of mergers. Winners will be the major hubs airport of each airline, the vendors at these airports, and flyers out of these hub airports. The losers will be the secondary hub airports, flyers from smaller towns which may have been served by two different airlines and one of the unions from the merged airlines. Many consumer groups are very concerned with the proposed mergers. An article from the Houston Chronicle notes:

(C)onsumer 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.

In the long run merged airlines are probably a good thing for everyone. There will be some pains along the way, but strong competitive industries are great for the end user. Look at the computer industry, we started out with huge machines that could barely add, the Ipod shuffle. Most of this innovation was driven by competition and the desire to make a profit. Based on this I would hope that the government requires the mergered airlines to give up a certain number or percentage of landing slots at airports with consolidated operations to introduce some competition into these markets. Oh and it would be great if they could mandate airlines to provide better customer service.

Here is a cool interactive map showing the main hubs of merged airlines.

Update to Post:
Delta & Northwest shares fall amid doubts.

NEW YORK (Reuters) - Delta Air Lines Inc (DAL.N) and Northwest Airlines Corp (NWA.N) shares fell on Monday partly on concerns their merger talks may fail on the inability of pilots to agree on how to combine their ranks.

Sources:
http://www.chron.com/disp/story.mpl/front/5548007.html
http://www.ajc.com/business/content/business/delta/stories/2008/01/31/hubs_0131.html
http://www.portfolio.com/interactive-features/2008/02/Airlines