Air Transport World

Is US consolidation inevitable?(ANALYSIS)

US Airways' aggressive attempt to acquire Delta Air Lines, which fizzled earlier this year when DL's creditors refused to endorse the takeover, might have sparked a consolidation frenzy that could have reshaped the world's largest air transport market.

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If the merger actually had gone through, it's unlikely the US's other four legacy carriers--United Airlines, American Airlines, Northwest Airlines and Continental Airlines--could have afforded to stand pat.

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A scenario in which the Big Six became the Bigger Three did not appear too far-fetched, particularly since few are really growing on their own, evidenced by the collective capacity of the country's 10 largest carriers increasing just 0.6% in 2006, including a 1% drop in domestic ASMs. Such a merger wave, which many industry players insist still is coming, would lead to the first major shakeup of the market since the late 1980s, when Ozark, Piedmont, Republic and Western were swallowed and Eastern Airlines and People Express joined the Texas Air empire.

Some say this round would be more significant. "In previous rounds of consolidation, regional carriers merged to create larger airlines to allow them to compete or healthy carriers bought the assets of weak carriers," US Senate Aviation Subcommittee Chairman Jay Rockefeller (D-W.Va.) explains. "No one merger threatened the competitive balance of the industry. If the largest carriers in the industry decided to merge, our nation would have a dramatically different aviation market. We would go from having six major network carriers to three, which would have major policy implications for this country."

Is consolidation inevitable, as US and UA fervently contend, or is the current structure sustainable given the rigorous cost-cutting airlines have endured and the return to profitability many of them enjoyed last year? …

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