United Airlines and US Airways are reportedly talking again about a merger. The two companies tried to merge 10 years ago, but that deal fell apart because of opposition from the pilots union and the U.S. Department of Justice. We asked aviation consultant Michael Boyd, president of Boyd Group International, why the airlines might be revisiting a merger and how a combination of these two airlines would affect consumers.
Would a merger of United and US Airways affect passengers?
Look at the last big merger, between Delta and Northwest. They didn't pull out any capacity (seats). They didn't pull out of any markets. They didn't raise fares. They didn't represent a huge new competitive juggernaut to other airlines. The world went on. And the same will happen here, except the consumer may be getting on a plane in Phoenix with a different name on the side.
Would some cities lose hubs if this merger were to go through?
Yes. For example, United has Denver as a hub, and US Airways has Phoenix. They might pull down Phoenix. So that would affect people in Phoenix, though it would not affect people connecting through Phoenix. They'll connect through somewhere else.
Wouldn't a merger inevitably mean higher fares?
That's the myth. The textbooks say if you can eliminate half the product in the marketplace, you can charge the consumer for more of what's left. In the airline business that is a lot harder to do. The airlines are already selling all their seats in the U.S., and are starting to get more money for it, so the need to merge isn't as obvious as it might be. Also, last year, during the Northwest-Delta merger, fares across the board actually dropped about 13 percent. We did some calculations and figure that if this merger were to happen, you would see, nationwide, about 3 percent to 5 percent of seats pulled out. That is not enough to squeeze consumers.
So if a fare increase is unlikely, what's the rationale for merging?
You put two airlines together, you can save on overhead costs. You can get rid of one of one headquarters. You can get rid of some maintenance facilities because you can combine them. Also, people make a lot of money doing mergers! Investment houses make a lot of money doing mergers. Executives make a lot of money doing mergers. So there is a dollar incentive to do this.
What are the odds that United and US Airways will be able to pull this off?
It could be very daunting. Dealing with unions, and government regulators, can be nightmarish. Delta and Northwest were able to pull of theirs because there was very little overlap -- and they also had a de facto merger years before, when they started code sharing. So for the consumer it didn't affect much, and that's why the Department of Justice didn't get involved. Also, it was a different administration.
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