Perhaps it has something to do with the season, but it is almost exactly a year since they last indulged in a frenzy of mating activity and the US majors are at it again. Only this time they are trying for smaller partners rather than pairing with each other.
American Airlines started the chase with its pursuit of Reno late last year, to be followed by United declaring its intentions towards America West. Delta, too, has entered the fray with a bid to pick up local regional Atlantic Southeast Airlines (ASA). All of which begs the question why?
Last year's batch of proposed "virtual mergers" succeeded in little more than stirring up the competition authorities, and never seemed particularly likely to do otherwise.
American's overtures towards its old flame US Airways were always destined to struggle to get past the Department of Transportation (DoT) and United's agreement with Delta, on the rebound from Continental, seemed less probable still. Predictably they found themselves dragged before the DoT and Congress as the whole competition debate became red hot.
The Northwest/Continental marriage, which had originally sparked the frenzy, is consummated, but a Department of Justice (DoJ) lawsuit hangs over the newly-weds. The couple complains that this messy stalemate was exactly the point. By jumping in with impossible proposals of their own, the big three spoiled their chances of taking a quick lead.
Similar scepticism from financial markets greeted news that United was making moves on America West. As the tale unfolds it would seem that they are right to doubt. Despite intense speculation from outside the deal, neither party has had much to say, beyond an acknowledgement from United that it was interested and the most terse of responses from America West. Its board has declared that the company would be "better served as an independent airline". Given United's earlier comments about avoiding hostile take-overs, that should be the end of the matter.
A further complication has been Continental's right of first refusal to acquire 50% in America West, gained in 1994 when it helped bail the carrier out of bankruptcy.
Even if America West had been a willing bride, the pro-competition lobby would be near certain to demand congressional hearings. Already, the American Society of Travel Agents has asked the DoJ to investigate. Sen John McCain, chairman of the Transportation committee, who spent most of last year taking the majors to task over competition, is also senator for Arizona - home of America West.
Intentionally or otherwise, any such hearing would most likely be extended to other proposed deals, heaping further coals on American's earlier agreement with Reno and any future plans it may have had of extending the recent code-share with Alaska Air.
The Reno deal had already run into trouble on its own. American pilots went on strike over the Presidents' Day bank holiday weekend, fearing that the aim was to bring cheap Reno capacity onto mainline routes, using it as a ready-made low-cost vehicle. A nine day "sick-out" was staged, despite being declared illegal by a District Judge. American puts a "conservative" estimate on the cost of the strike at $59 million.
Delta, keen to avoid similar pilot upheavals and wise after its experience with United, could not stress enough that its planned acquisition of regional affiliate ASA would see the two airlines kept totally separate. Whether that satisfies the Delta pilots remains to be seen. With the majors making handsome profits, they, like other unions, are keen to find a lever with which to open up the next round of contract negotiations.
With so many risks why, then, are the majors still pushing for consolidation? In part, no doubt, to probe how far Washington is prepared to let consolidation run. The answer to date is not too far. But if one deal should go through, others risk being left behind.
Delta's play for ASA, however, is potentially a more interesting case and not only because it is more likely to succeed - as have other recent acquisitions of regionals. Delta says that the move is designed to help make ASA an even more efficient feeder to its Atlanta and Dallas hubs. But perhaps also there is a note of nervousness about the growing power that some of the independent regionals can now command. Their success has been breathtaking following the advent of the regional jet and the majors have come to rely on this powerful feed - Delta itself, for example, relies heavily on Comair for the success of its Cincinnati hub.
A competitive bidding war by the majors for such regionals would indeed be a fascinating contest. And, like most mating rituals, is bound to entertain.
Source: Airline Business
