Sunday, February 5, 2012
Mergers
The airline industry is a finicky creature. There are constantly companies starting up, shutting down, growing, shrinking and merging. This week I will focus on the last in that category and discuss mergers. During my discussion of mergers, I will look at the Trans World Airlines merger with American Airlines. I will also look at the current merger between AirTran and Southwest. Finally I will discuss the future of American Airlines and how mergers will affect the future of aviation managers.
In April of 2001 Trans World Airlines was acquired by AMR Corp. AMR corp is the parent company of American Airlines. American Airlines purchased the failing airline in a complicated $500 million deal. According to BBC, $300 million of that purchase was for the acquisition of a majority of TWA's assets. the additional $200 million was to be pumped into TWA's base in St. Louis. The new company is called American Airlines. As a consequence of the merger, TWA no longer exists as TWA. Also STL jet routes have severely decreased and Some of TWA's bases have been closed down. As a result of this merger, TWA/American flights accounted for over 25% of North American air service.
Currently Southwest and AirTran are merging. The two companies are expecting a single operating certificate to be issued in the first quarter of this year. The two companies will operate under the name Southwest Airlines. There is little to no overlap of the two airlines. This acquisition of AirTran allows Southwest to break into the market in LGA and DCA. The biggest benefit is the extended service to the East coast. There have been no furloughs announced however, according to http://www.lowfaresfarther.com/what-it-means/employees, There will be more information after an SOC is issued.
The future of American Airlines is murky at best. In 2001 American Airlines was the largest carrier in North America. Their acquisition of TWA really set them back. The liabilities and debt that TWA brought with them really set the company up for a downward spiral. There have been some rumors of a merger with Delta. I honestly do not think Delta will take on the faltering airline. US Airways is seriously considering a merger. I honestly think it is aimed at trying to put them on equal footing with United, Delta and Southwest. I think that without a merger or massive cuts, this company will not recover. Even with the massive cuts, I do not think they would be able to return to their former number one status.
Mergers affect every little part of the business. From snacks to seniority, it is management's job to make sure companies are joined seamlessly. While mergers mean more work and job security initially, eventually it means that there will be less jobs. There will no longer be a need for 2 HR departments, 2 flight ops departments, 2 catering departments, 2 purchasing departments, etc...
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" I honestly do not think Delta will take on the faltering airline." I'm doubtful of that too. Even if Delta attempted to merge with American, I highly doubt it'd pass DOT approval (for antitrust reasons). Delta would be the huge gorilla in every major market in the USA. Probably wouldn't be good for the economy, either, since many markets and routes would probably become monopolized (another reason I’m doubtful it'd pass through the DOT). American and US Airways, however, would likely pass DOT approval with ease, since those two combined would have a market share on par with that of United-Continental and Delta-Northwest.
ReplyDeleteGood insight as to the potential suitors for American Airlines. I am going to take a different approach to their survival however. They were until recently the only "legacy" carrier to not seek bankruptcy protection. Now that they have, that puts them on equal footing with all the other airlines who've had that very advantage. Once they get their finances in order, I feel that they will become profitable in the next five years and on a path to solvency. Too bad for the 13,000 people losing their jobs and the people who've planned on getting generous pensions.
DeleteIronic that they pumped $200 million into STL and have decreased it so much! I agree with you that I don't believe Delta will take on American. I think American is in such a huge whole with senior pilots and senior planes that there in a world of hurt. Interesting that just 10-11 years ago American was the largest airline, and now they filed for bankruptcy and are in a world of hurt, amazing what 10 years can mean in the aviation industry!
ReplyDeleteI am going to have to jump on the bandwagon here and also say that I don't think it is possible for Delta to merge with American. Delta and American are already both very large airlines. I would have to ask: would this create an airline that is simply too large to be efficient and profitable? Delta is already offering a buyout or early retirement to many of its employees to downsize and get new employees and a lower pay scale. Also, good analysis on the negative employement effects of mergers. You said it far better than I could have.
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