us airline mergers pro or con

US Airlines Mergers

Abstract

The airline industry has to operate in a competitive world . Many airlines are unable to survive in their present set up and have to streamline their operations through cost cutting measures . Merging with another airline provides a possible method to improve airline operations and reduce costs by sharing the available resources and eliminating duplication of services

From the customer perspective , mergers provide a mix blessing . In some cases mergers allow services which could have been discontinued due to airline closure . In most cases , however reduced competition

results in higher fares and the customer looses as a result of mergers

This essay reviews the pros and cons of airline mergers in United States airline industry

Outline

Introduction

Mergers Acquisition

Airline Industry in United States

Advantages of Airline Mergers

Horizontal Merger

Economies of Scope

Synergies

Diversification

Vertical Integration

Taxes

Arguments for Further Consolidation

The Disadvantages of US Airline Mergers

Hirschman-Herfindahl Index (HHI

Antitrust Issues

Discussion and Conclusions

Bibliography

Introduction

Mergers and Acquisitions are an important part of business operations In the jargon of Mergers Acquisition (M A ) it is often said that one plus one makes three [M A , 2007] . The key principle in M A is that two separate companies when combined offer more value to the shareholders than two separate companies . Merger and acquisition , both amicable and hostile have been the norm in the business operations . Airline industry in United States has had more than its fair share of mergers . In 1985 there were more than 20 major airlines , the mergers in mid 1980s saw almost half of them disappear , merge or acquired by other major airlines . That round of merger saw Ozrak , Piedmont PSA , Republic , AirCal and Western Airlines disappear from the scene , while Northwest , Delta and American emerge as much larger airlines

The aftermath of 9 /11 and post Iraq war high oil prices threatened the survival of many airlines once again and airline merger is once again being presented as inevitable and necessary for the US air industry Recent merger speculation about United Airline merger with Continental Airlines triggered other airlines joining forces as a defensive move to compete with much larger potential rivals . Wall Street Analyst speculated that such a merger will eventually merge the six traditional carriers into three airlines

Airline industry pundits have different opinion about the advantages or otherwise of airlines mergers . Some reject the notion that the airlines need consolidation . Pilarski insists that the airlines need restructuring not consolidation "Did United go into Chapter 11 because it was too small " he asked "What we really need is restructuring instead of consolidation . I don 't see the benefits of a [merger] among equals at all " [Karp , 2007]

The Pro-merger advocates claim that financial stability of consolidated larger airlines will benefit the airlines and the consumers [Reed 2006] . The consumer watchdog organizations claim that airlines merger will result in higher fares , fewer choices , fewer flights , poor service and the giant airlines will prevent new more competitive airlines from even getting...