One of the greatest pieces of news out there in the aviation industry currently is the impending merger between USAirways and American Airlines. As of July 12, 2013, the vote passed through the shareholders in favor of the merger. The merger will be an 11 billion dollar investment that is mostly stock options to shareholders. The department of Justice has been entertaining theories or excuses on blocking the merger under the grounds that it´s anticompetitive to bring fourth antitrust issues, which is fine, however they are forgetting the fundamental principle to the rules and regulations that define competition in the airline industry. When you boil it down to semantics and the particulars of antitrust regulations, they are not geared towards total overall network coverage. No. Antitrust regulations in the airline industry were written to regulate localized market share from bases or hubs of operation under the hub and spoke concept. For example. Let´s say that United wanted to make a bid for American Airlines. Under the current regulations, one of the two would have to have a massive program geared towards divestment of Chicago and New Yorks JFK and LGA in order to have the new company fall into compliance with applicable antitrust issues. Antitrust issues also deal with local traffic shared on routes competitively. When airlines move towards a mega merger such as this up and coming one between USAirways and American Airlines, the DOJ scrutinizes the potential combined network (I say potential combined network because the approval has not went fourth just yet for the action to take place. So in theory it´s still a theory and all scenarios involved are hypothetical until approval takes place). The potential death nail of any merger in the airline industry really boils down to redundancies and frequencies that make up total market share. If an airline wishes to merge with another airline, the underlying objective prior to making the announcement is to limit or eradicate route redundancy. The less competitive you appear to be is the key to winning DOJ approval. While Delta is a very good airline operation, it did not do so good of a job during it´s merger with Northwest in that respect. This is the reason why Cincinnati and Memphis (both Delta and Northwest hubs) were drastically downsized and people lost jobs in those cities as Delta decided to move most Cincinnati operations to Detroit, and Atlanta handles almost all traffic that used to be out of Memphis. This is also where the DOJ failed the people because this was clearly classified as a local issue and very much within the realm of stable competition and employment. United´s merger with Continental faired better, however Cleveland took a pretty big hit on that merger. USAirways and American Airlines are a bit different when it comes to competition. Oddly enough and to just about everyone´s shock, USAirways and American Airlines only compete with one another out of each others hub and focus cities. That basically means that you have less than 15 redundant routes within a combined network. The only city where there will be an issue to the merger will be DCA. The combined network out of there will be 68 percent. That´s a bit too much market share, especially since Philadelphia is a major fortress hub just up the street that you can throw your connecting traffic at. The bottom line is this. There is no real antitrust issues that can really be thrown at this merger because the two airlines don´t even really compete locally against one another. USAirways is accustomed to operating out of fortress hubs, and all three of their hubs and one focus city bring something positive operationally to the table. American on the other hand? Well it´s going to need to be tweaked considerably to become more efficient operationally. The best thing about this merger is that Doug Parker and the old team from America West which now runs USAirways will be in the drivers seat of the new American Airlines. If you are an industry follower or an analyst, I would highly recommend that you start taking notes, because this merger is going to be a very interesting one. The last hurdle is the DOJ for approval. abcnews.go/Travel/american-airlines-us-airways-merger/story?id=18427166#.UeZRTCpm280
Posted on: Wed, 17 Jul 2013 08:55:18 +0000
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