- April 15th 2010
According to industry reports airlines are struggling for survival and that’s the reason for the constant talks about mergers. British Airways has finally signed an agreement to merge with Spanish carrier Iberia, while United Airlines and US Airways are in talks. If you happen to abe a shareholder of those airlines, then merger talks are probably good news as it secures the future for the airlines and keeps share prices stable or rising, but what about the rest of us?
According to Mike Boyd of the Boyd International Group speaking of the United Airlines/US Airways tie-up: “It’s a myth that this consolidation will mean you will pay more and seats will be slashed.” (Source) I’m not so sure.
Many airlines enter these markets to improve their reach, but as other pundits have pointed out. Mergers lead to synergies and synergies lead to lost jobs which could mean poorer service for some travelers. And just because the airlines operate on different routes, it doesn’t mean that they will keep both of them. Take the case of the UK’s BMI, bought a few years ago by Lufthansa. No sooner was the ink dry on the deal than Lufthansa axed the Manchester-Barbados run, forcing sunseekers from the Midlands to head south to Heathrow and Gatwick. So for me, the jury’s out on that one.
And what’s next in the airline industry? The feeling is that in this ultra-competitive climate more tie-ups are on the horizon. A BBC article suggests that once the BA/Iberia merger is complete, the group will eye links with American, European and Asian carriers, with American Airlines firmly in its sights.
Does that mean we’re heading for an era of airline super-groups? Things could still change. BA’s well known pension fund problems could still derail that merger and there are no certainties either with the two American carriers. For me, the equation is simple, though – fewer carriers means less competition, which leads to higher prices for travelers in the future. What do you think?