spinproof
Well-known member
- Joined
- Oct 19, 2002
- Posts
- 774
Steering a new course through the skies
Airline mergers could face tough scrutiny in Congress as U.S. Rep. James Oberstar takes over a key House committee.
Liz Fedor, Star Tribune Last update: December 03, 2006 – 4:23 PM
U.S. Rep. James Oberstar intends to take a hard look at potential airline mergers in the coming months because he knows that fusing two carriers together often causes pain for employees and hurts some consumers.
The Minnesota Democrat already is scrutinizing the proposed US Airways-Delta merger.
Next month, Oberstar will assume the chairmanship of the House Transportation and Infrastructure Committee, where he will be well-positioned to raise concerns in the event that a wave of consolidation sweeps the airline industry next year, as some observers predict.
While airlines don't need congressional approval to merge, Oberstar's post gives him the ability to spotlight antitrust issues that the Justice Department is legally obliged to examine.
"People are saying there is overcapacity" and that some seats should be removed from the market, Oberstar said. But he sees carriers flying with many full planes and argues "there is a lack of substantial competition" on many routes.
Oberstar, who was reelected to a 17th House term last month, gave his assessment of the state of the airline industry and talked about his oversight role during an interview last week with the Star Tribune.
The only member of the Minnesota delegation who was serving in Congress when the airline industry was deregulated in 1978, he sees that move as a success.
"There's no question about the success of deregulation," Oberstar said. "It has created seamless travel, more nonstops, more destinations, more opportunities." By taking the government out of the pricing business, consumers are saving about $6.5 billion a year on fares, he argued.
"So when mergers and acquisitions and leveraged buyouts are considered," Oberstar said, "my first thought is: Is the result going to be undoing the consumer benefits of deregulation?"
The latest round of merger speculation began Nov. 15, when US Airways CEO Doug Parker made a hostile move to acquire bankrupt Delta Air Lines. On Thursday, US Airways executives had their first meeting with Delta's creditors committee in an attempt to win their support for the deal.
"US Airways has hardly digested the merger with America West," Oberstar said, referring to the lingering labor and operational issues from the combination of those two carriers in the fall of 2005.
US Airways and Delta now compete on about 155 domestic routes, and Oberstar said he has directed his staff to examine the impact of a merger on those routes.
"What does this do in markets where the two carriers are now competing? Who are the other competitors in those markets? Will some cities lose out? Will travelers [end up] paying higher fares? Those are the questions that I think have to be evaluated before you can make a judgment on whether this proposed merger would be in the overall best public interest," Oberstar said.
Eagan-based Northwest Airlines also is considered a merger candidate, with Continental and American considered as potential partners -- or Delta, if the deal with US Airways doesn't happen.
After current Northwest board chairman Gary Wilson and businessman Al Checchi led a leveraged buyout of Northwest in 1989, Oberstar said they spent a lot of time and money examining possible mergers. Ultimately, he said, Northwest chose instead to pursue code-sharing agreements with carriers such as Continental. Those alliances allow passengers to travel on two airlines for a single trip, but gain the ticketing and baggage-handling convenience of flying on one.
Northwest's last merger was 20 years ago when it combined with Republic Airlines, and Oberstar said he saw a "clash of cultures," which is typical of any merger.
In the days after the merger, Oberstar said, "I'd stop and ask station managers how things were going, and they'd whisper, 'I am a Republic guy and Northwest is a long-haul [airline]. We are a short-haul [airline]. They don't understand how to do things.' "
Oberstar did not say which airline he believes might emerge as the most likely merger partner for Northwest, but he did indicate that he sees the Eagan-based company facing stiffer competition to expand U.S. flights to China. Specifically, he doesn't believe that the U.S. Department of Transportation will grant Northwest authority for a hotly contested new route to China.
There is a four-way competition for the China route, and Northwest has proposed that it be between Detroit and Shanghai. Oberstar categorized Northwest and Continental as "second-tier players" in the competition.
"From the standpoint of competition, it might be a better decision by DOT to award service to American [Dallas to Beijing], provided their service will challenge United," Oberstar said. By mid-December, he intends to make a recommendation to the department, and he said that he will likely suggest the route go to American or United.
Oberstar said he has talked often this year with Northwest and Mesaba Airlines employees as they've faced big concessions, which he said have "left very deep resentment." Now, he said, it is "incumbent upon management at Northwest and Mesaba" to sit down with their employees "and win their trust."
Liz Fedor • 612-673-7709 • [email protected]
Airline mergers could face tough scrutiny in Congress as U.S. Rep. James Oberstar takes over a key House committee.
Liz Fedor, Star Tribune Last update: December 03, 2006 – 4:23 PM
U.S. Rep. James Oberstar intends to take a hard look at potential airline mergers in the coming months because he knows that fusing two carriers together often causes pain for employees and hurts some consumers.
The Minnesota Democrat already is scrutinizing the proposed US Airways-Delta merger.
Next month, Oberstar will assume the chairmanship of the House Transportation and Infrastructure Committee, where he will be well-positioned to raise concerns in the event that a wave of consolidation sweeps the airline industry next year, as some observers predict.
While airlines don't need congressional approval to merge, Oberstar's post gives him the ability to spotlight antitrust issues that the Justice Department is legally obliged to examine.
"People are saying there is overcapacity" and that some seats should be removed from the market, Oberstar said. But he sees carriers flying with many full planes and argues "there is a lack of substantial competition" on many routes.
Oberstar, who was reelected to a 17th House term last month, gave his assessment of the state of the airline industry and talked about his oversight role during an interview last week with the Star Tribune.
The only member of the Minnesota delegation who was serving in Congress when the airline industry was deregulated in 1978, he sees that move as a success.
"There's no question about the success of deregulation," Oberstar said. "It has created seamless travel, more nonstops, more destinations, more opportunities." By taking the government out of the pricing business, consumers are saving about $6.5 billion a year on fares, he argued.
"So when mergers and acquisitions and leveraged buyouts are considered," Oberstar said, "my first thought is: Is the result going to be undoing the consumer benefits of deregulation?"
The latest round of merger speculation began Nov. 15, when US Airways CEO Doug Parker made a hostile move to acquire bankrupt Delta Air Lines. On Thursday, US Airways executives had their first meeting with Delta's creditors committee in an attempt to win their support for the deal.
"US Airways has hardly digested the merger with America West," Oberstar said, referring to the lingering labor and operational issues from the combination of those two carriers in the fall of 2005.
US Airways and Delta now compete on about 155 domestic routes, and Oberstar said he has directed his staff to examine the impact of a merger on those routes.
"What does this do in markets where the two carriers are now competing? Who are the other competitors in those markets? Will some cities lose out? Will travelers [end up] paying higher fares? Those are the questions that I think have to be evaluated before you can make a judgment on whether this proposed merger would be in the overall best public interest," Oberstar said.
Eagan-based Northwest Airlines also is considered a merger candidate, with Continental and American considered as potential partners -- or Delta, if the deal with US Airways doesn't happen.
After current Northwest board chairman Gary Wilson and businessman Al Checchi led a leveraged buyout of Northwest in 1989, Oberstar said they spent a lot of time and money examining possible mergers. Ultimately, he said, Northwest chose instead to pursue code-sharing agreements with carriers such as Continental. Those alliances allow passengers to travel on two airlines for a single trip, but gain the ticketing and baggage-handling convenience of flying on one.
Northwest's last merger was 20 years ago when it combined with Republic Airlines, and Oberstar said he saw a "clash of cultures," which is typical of any merger.
In the days after the merger, Oberstar said, "I'd stop and ask station managers how things were going, and they'd whisper, 'I am a Republic guy and Northwest is a long-haul [airline]. We are a short-haul [airline]. They don't understand how to do things.' "
Oberstar did not say which airline he believes might emerge as the most likely merger partner for Northwest, but he did indicate that he sees the Eagan-based company facing stiffer competition to expand U.S. flights to China. Specifically, he doesn't believe that the U.S. Department of Transportation will grant Northwest authority for a hotly contested new route to China.
There is a four-way competition for the China route, and Northwest has proposed that it be between Detroit and Shanghai. Oberstar categorized Northwest and Continental as "second-tier players" in the competition.
"From the standpoint of competition, it might be a better decision by DOT to award service to American [Dallas to Beijing], provided their service will challenge United," Oberstar said. By mid-December, he intends to make a recommendation to the department, and he said that he will likely suggest the route go to American or United.
Oberstar said he has talked often this year with Northwest and Mesaba Airlines employees as they've faced big concessions, which he said have "left very deep resentment." Now, he said, it is "incumbent upon management at Northwest and Mesaba" to sit down with their employees "and win their trust."
Liz Fedor • 612-673-7709 • [email protected]
Last edited:
