A wave of consolidation talk across the US airline industry has left all the players in the sector with a choice of either teaming up with former bitter rivals or being left behind with inferior routes and costs, experts said on Wednesday.
The recent merger talks between UAL, parent of United Airlines, and Continental Airlines could further jump-start the process and spur any laggards into the game.
Sources familiar with the talks say the two airlines are just in preliminary discussions about a merger. Although the carriers reportedly have discussed their consolidation prospects before, they resumed discussions following US Airways' November 15 unsolicited bid for Delta Air Lines.
United and Continental do not seem interested in being left out of a possible consolidation wave, said Joe Schwieterman, transportation expert at DePaul University.
"There's only a limited number of potential merger partners, so no airline can afford to stay on the sidelines and be left with an inadequate route structure," he said.
When airlines merge, the combined entity often has competitive advantages over rivals related to their operational reach and cost structures.
"Consolidation makes possible greater aircraft, airport and gate utilization, which can help push down cost," Schwieterman said.
The airline industry has been rife with consolidation speculation this year as carriers continue to grapple with low fares and overcapacity. Industry leaders are almost unanimous in the view that there are too many major airlines.
Rumored potential couplings have included, United and Continental, United and Delta, and American Airlines and Northwest Airlines.
Also on Wednesday, low-cost airline AirTran Airways parent AirTran Holdings said it was bidding to take over Midwest Air for almost USD$300 million.
Last week, Northwest asked for bankruptcy court permission to hire a company to advise it on strategic options, including a merger.
US Airways Chief Executive Doug Parker says the proposed merger with Delta would save the combined airline USD$1.65 billion annually and reduce capacity by 10 percent.
A US Airways-Delta merger also would bolster their routes and further entrench a combined airline in regions currently served by both companies.
These are advantages competing carriers cannot ignore, said airline consultant Robert Mann.
"You get squeezed out in effect, and everyone worries about getting squeezed," Mann said. "You're left exposed because you don't have the network scope of other participants."
Mann said there is added urgency to merge now that US Airways seems to have set a consolidation wave in motion. No one wants to be the last to merge, he said, because takeover prices rise as potential merger partners dwindle.
