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Now on the radar: U.S. airline mergers
By ASSOCIATED PRESS
Published December 14, 2006
CHICAGO - A long-anticipated consolidation of U.S. airlines could mean higher fares for travelers as overlapping routes are eliminated, experts said Wednesday as talk of likely deals reverberated throughout the industry. That's one reason why any such buyouts could draw intensified regulatory scrutiny, along with the potential for increased labor and service disruptions, as some consumer advocates warn. Don't tell that to Wall Street. Airline stocks surged on news that United and Continental are holding preliminary discussions and after AirTran launched a hostile takeover bid for Midwest, with other carriers also examining how to merge to keep up with bigger competition. Orlando-based AirTran said Wednesday its $290-million offer for rival Midwest Air Group Inc. was rejected but it will continue trying to acquire the Milwaukee-based regional carrier. Numerous regulatory and other obstacles remain before any deal can occur, but industry observers said all the talks and recent airline restructurings have set the stage for big changes in the business next year. A combined United and Continental would be the third-largest carrier at Tampa International Airport with 12.2 percent of the market. United flies to its hubs in Chicago, Denver and Dulles International outside Washington, D.C. Continental flies to hubs in Newark, Houston and Cleveland. Its regional affiliate Continental Connection flies to several Florida cities. AirTran is the No. 6 airline at Tampa International, carrying nearly 7 percent of passengers. Midwest's share is less than 1 percent, with flights to only Milwaukee and Kansas City, Mo. UAL Corp.'s United Airlines and Continental Airlines Inc. declined to comment on whether it is talking about teaming up. But a person close to the airlines who the Associated Press said asked not to be identified said they have been exploring a possible combination in discussions that stepped up after US Airways Group Inc. made a hostile bid for bankrupt rival Delta Air Lines Inc. last month. The talks were said to be very preliminary, with no deal imminent. Putting together the nation's second- and fifth-largest carriers would produce an airline superpower - the nation's largest - merging United's strengths in the Pacific and western United States with Continental's successful operations in Latin America and the Atlantic market and its prosperous hub in Newark, N.J., a popular gateway to Europe. That could enable United, slimmed down from a three-year bankruptcy restructuring that ended in February, and Continental to use their combined clout to reduce operating costs and become more profitable. Fliers better off? Most experts agree that less competition would boost fares, but some see boons for passengers, too. Terry Trippler of the Web site MyVacationPassport.com said consumers will benefit in the long run from healthier airlines and, as a result, a much more stable transportation system. He said competition should remain strong and fares shouldn't climb much. Kevin Mitchell, however, said ticket prices would rise significantly and the public can expect service disruptions, repercussions from labor strife and more job insecurity in the airline industry if the carriers merge. "Shareholders, advisers and other firms are the big winners here," said Mitchell, chairman of the Business Travel Coalition, an advocacy group. "I would view it, if I'm a business traveler, on the customer service side as many years of unimaginable pain." Joe Brancatelli, an independent business travel analyst, said consumers already are losers from merger mania - with or without deals being closed. "So much management time is being consumed by creating or fighting a merger," said Brancatelli, who runs a Web site for business travelers called joesentme.com. "All that time would have otherwise been spent on plugging holes in the already creaky system." Major airlines' merger activity The airline industry, which has had its share of consolidation in recent years, could be poised for more. Here's a look at a few airlines and selected merger activity from the last 25 years. Current national market share: 15.7percent 1987: Acquired commuter airline Nashville Eagle and later established American Eagle 1999: Completed purchase of Reno Air 2001: Bought the assets of TWA for $742-million Current national market share: 12.1percent 1995: Workers vetoed US Airways merger 2000: UAL made new plans to buy US Airways 2001: Federal regulators moved to block the acquisition; the companies terminated the deal Current national market share: 11.8percent 1986: Bought Western Air Lines 2000: Bought regional carriers Atlantic Southeast Airlines and Comair Current national market share: 11.5percent 1994: Bought Salt Lake City-based Morris Air Current national market share: 7.5percent 1982: Bought by Texas Air 1990: Texas Air changed its name to Continental Airlines Holdings 1998: Northwest bought a share of Continental 2000: Northwest reduced its share in Continental but gained veto power over any proposed acquisitions Current national market share: 7.0percent 1986: Bought Republic Airlines Current national market share: 4.7percent 1987: USAir bought Pacific Southwest and Piedmont Airlines 1993: British Airways bought a stake in USAir 1997: Changed name to US Airways 1998: British Airways sold its stake in USAirways
[Last modified December 13, 2006, 23:27:47]
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