Noserider76
Teahupoo
- Joined
- Jul 9, 2004
- Posts
- 789
Nov. 27, 2006, 9:38AM
Airline merger may not take off
US Airways bid for Delta must clear regulators
By DAVID IVANOVICH
Copyright 2006 Houston Chronicle Washington Bureau
TOOLS
Email Get section feed
Print Subscribe NOW
WASHINGTON — A consolidation craze has taken off in the airline industry. But federal antitrust-busters may not be so keen to get on board.
With the nation's planes packed full and air fares flying high, US Airways Group's hostile bid to take over financially troubled Delta Air Lines could face a cool reception at the U.S. Justice Department.
"It's going to be a difficult deal to get through," warned Mark Schechter, a Washington antitrust lawyer and the former head of the Justice Department's Transportation, Energy and Agriculture Section. "If they do get it through, it's going to make the next deal even more difficult."
Wall Street is more optimistic the deal will fly. If so, many investors anticipate another proposal will arrive in short order.
"You may see some defensive plays ... as other carriers start looking down the road at who they could pair up with to protect their own market share," said Washington aviation attorney Josh Romanow.
Other airlines have certainly taken notice.
Larry Kellner, Continental Airlines' chief executive officer, already has said the Houston-based carrier might have to act if the airline industry changes.
And a Continental deal with, say, United Airlines, might prove less problematic with regulators than a US Airways-Delta union, JPMorgan analysts say.
Earlier merger blocked
When evaluating a merger, regulators try to ensure consumers aren't harmed by allowing air service in particular markets to be concentrated in so few hands the remaining carriers have the power to raise ticket prices dramatically.
But they must balance that aim with the need to help stabilize the U.S. airline industry in the post-9/11 world.
Knowing business travelers don't like layovers, regulators will pay particular attention to nonstop service between cities. A carrier offering the only nonstop flights between a pair of cities can afford to hike fares significantly.
Five years ago, for instance, the Justice Department moved to block United's proposed takeover of the old US Airways.
That deal made regulators uncomfortable because United and US Airways were the only carriers offering nonstop service from Washington to a number of cities. Those two also offered the only nonstop service from hub cities such as Philadelphia to Los Angeles.
But when America West declared its affection for US Airways, Justice officials gave that merger its blessing.
That's because the two carriers' route systems had little overlap. America West's operations were concentrated in the West, with hubs in Phoenix and Las Vegas, while US Airways focused on the East, with hubs in Philadelphia, Pittsburgh and Charlotte, N.C.
In a speech to regional air carriers last year, J. Bruce McDonald, deputy assistant attorney general for the Justice Department's antitrust division, called that merger, which created what is now US Airways, "an example of the kinds of mergers that may easily avoid antitrust problems."
US Airways and Delta's networks overlap significantly more — about 18 percent for service among the top 500 city pairs, a JPMorgan analyst team noted in a recent report. That deal would also reduce competition to a potentially unacceptable degree in about 11 city pairs, the JPMorgan analysts noted.
A combination of Continental's and United's route systems, in contrast, would overlap about 16 percent but would spark competitive concerns in only four cities — New York, San Francisco, Seattle and Kansas City, the report said.
Factors in favor
US Airways has said it thinks any antitrust concerns can be resolved.
In the last quarter of a century, US Airways officials say, no merger in which the purchaser had such a small share of the overall market — about 8 percent — has been challenged. And, they point out, of the 11 markets with overlapping nonstop routes, seven have competing service from nearby airports.
Delta's financial difficulties could also play a role. Regulators would prefer to allow a takeover reducing competition to go through than watch an airline be liquidated. That's why Justice officials cleared American Airlines' pickup of TWA.
Delta is operating under Chapter 11 bankruptcy court protection, but the carrier has said it plans to emerge from bankruptcy next year as a "strong, stand-alone carrier."
Despite US Airways and Delta's route overlap, the JPMorgan analysts peg the chance of obtaining approvals from both creditors and regulators at 80 percent.
But with seats more than 80 percent full and the airlines having been successful in raising fares repeatedly this year, Mike Boyd of The Boyd Group, a Colorado-based aviation consulting firm, doesn't believe regulators will be in any mood to open the door to a new merger wave.
"I think it'll get stopped here," Boyd said.
Facing new Congress
If Delta agrees to a takeover, US Airways will also have to face a new, Democratically controlled Congress. Lawmakers on Capitol Hill — virtually all of whom are frequent fliers — don't hesitate to express their displeasure about airline deals they fear could hurt their constituents.
Rep. James Oberstar, D-Minn., who will soon chair the House Transportation and Infrastructure Committee in the new Congress, hasn't taken a position on the proposal.
But he'll be asking "what is the impact on fares," noted Oberstar spokesman Jim Berard. "What is the impact on service, and what is the impact on competition? If you have US Airways and Delta merge and fewer seats serving the market, that normally drives up the prices."
"No airline merger will ever go under the radar screen," Schechter said.
[email protected]
Airline merger may not take off
US Airways bid for Delta must clear regulators
By DAVID IVANOVICH
Copyright 2006 Houston Chronicle Washington Bureau
TOOLS
Email Get section feed
Print Subscribe NOW
WASHINGTON — A consolidation craze has taken off in the airline industry. But federal antitrust-busters may not be so keen to get on board.
With the nation's planes packed full and air fares flying high, US Airways Group's hostile bid to take over financially troubled Delta Air Lines could face a cool reception at the U.S. Justice Department.
"It's going to be a difficult deal to get through," warned Mark Schechter, a Washington antitrust lawyer and the former head of the Justice Department's Transportation, Energy and Agriculture Section. "If they do get it through, it's going to make the next deal even more difficult."
Wall Street is more optimistic the deal will fly. If so, many investors anticipate another proposal will arrive in short order.
"You may see some defensive plays ... as other carriers start looking down the road at who they could pair up with to protect their own market share," said Washington aviation attorney Josh Romanow.
Other airlines have certainly taken notice.
Larry Kellner, Continental Airlines' chief executive officer, already has said the Houston-based carrier might have to act if the airline industry changes.
And a Continental deal with, say, United Airlines, might prove less problematic with regulators than a US Airways-Delta union, JPMorgan analysts say.
Earlier merger blocked
When evaluating a merger, regulators try to ensure consumers aren't harmed by allowing air service in particular markets to be concentrated in so few hands the remaining carriers have the power to raise ticket prices dramatically.
But they must balance that aim with the need to help stabilize the U.S. airline industry in the post-9/11 world.
Knowing business travelers don't like layovers, regulators will pay particular attention to nonstop service between cities. A carrier offering the only nonstop flights between a pair of cities can afford to hike fares significantly.
Five years ago, for instance, the Justice Department moved to block United's proposed takeover of the old US Airways.
That deal made regulators uncomfortable because United and US Airways were the only carriers offering nonstop service from Washington to a number of cities. Those two also offered the only nonstop service from hub cities such as Philadelphia to Los Angeles.
But when America West declared its affection for US Airways, Justice officials gave that merger its blessing.
That's because the two carriers' route systems had little overlap. America West's operations were concentrated in the West, with hubs in Phoenix and Las Vegas, while US Airways focused on the East, with hubs in Philadelphia, Pittsburgh and Charlotte, N.C.
In a speech to regional air carriers last year, J. Bruce McDonald, deputy assistant attorney general for the Justice Department's antitrust division, called that merger, which created what is now US Airways, "an example of the kinds of mergers that may easily avoid antitrust problems."
US Airways and Delta's networks overlap significantly more — about 18 percent for service among the top 500 city pairs, a JPMorgan analyst team noted in a recent report. That deal would also reduce competition to a potentially unacceptable degree in about 11 city pairs, the JPMorgan analysts noted.
A combination of Continental's and United's route systems, in contrast, would overlap about 16 percent but would spark competitive concerns in only four cities — New York, San Francisco, Seattle and Kansas City, the report said.
Factors in favor
US Airways has said it thinks any antitrust concerns can be resolved.
In the last quarter of a century, US Airways officials say, no merger in which the purchaser had such a small share of the overall market — about 8 percent — has been challenged. And, they point out, of the 11 markets with overlapping nonstop routes, seven have competing service from nearby airports.
Delta's financial difficulties could also play a role. Regulators would prefer to allow a takeover reducing competition to go through than watch an airline be liquidated. That's why Justice officials cleared American Airlines' pickup of TWA.
Delta is operating under Chapter 11 bankruptcy court protection, but the carrier has said it plans to emerge from bankruptcy next year as a "strong, stand-alone carrier."
Despite US Airways and Delta's route overlap, the JPMorgan analysts peg the chance of obtaining approvals from both creditors and regulators at 80 percent.
But with seats more than 80 percent full and the airlines having been successful in raising fares repeatedly this year, Mike Boyd of The Boyd Group, a Colorado-based aviation consulting firm, doesn't believe regulators will be in any mood to open the door to a new merger wave.
"I think it'll get stopped here," Boyd said.
Facing new Congress
If Delta agrees to a takeover, US Airways will also have to face a new, Democratically controlled Congress. Lawmakers on Capitol Hill — virtually all of whom are frequent fliers — don't hesitate to express their displeasure about airline deals they fear could hurt their constituents.
Rep. James Oberstar, D-Minn., who will soon chair the House Transportation and Infrastructure Committee in the new Congress, hasn't taken a position on the proposal.
But he'll be asking "what is the impact on fares," noted Oberstar spokesman Jim Berard. "What is the impact on service, and what is the impact on competition? If you have US Airways and Delta merge and fewer seats serving the market, that normally drives up the prices."
"No airline merger will ever go under the radar screen," Schechter said.
[email protected]
