As U.S. Airways proceeds with its hostile $8 billion bid for bankrupt Delta Airlines Inc., some worry that the move will mean fewer options, less competition, and higher prices. The more probable result is the contrary. A more extensive consolidation of the airline industry should be welcomed. If not thwarted by the government and labor unions, consolidation will make the 130 carriers now flying more efficient and competitive, delivering multiple benefits, including more options and lower prices, to consumers.
Consolidation would be compatible with the practice of stewardship, which views the goods of this world — including business enterprises — as being held in trust and thereby entailing an obligation on their trustees to manage their concerns in a manner that is not wasteful or destructive. Given the nature of the industry today, proper stewardship of commercial airlines implies reform.
Without tax-payer protection, Delta Air Lines would be no more. In October, Delta reported that its net loss narrowed to $88 million from $301 million in the same month of last year. Delta is in serious trouble and a U.S. Airways consolidation would bring increased pressure to instate a sustainable business operation.
Under the protection of the government's lenient bankruptcy laws and maladroit interference with the free market, major airlines such as Delta have been able to survive the market driven fates of Eastern, Pan Am, and Trans World Airlines.
The airline industry has perfected the art of going to government protection in bankruptcy so as to hide from their own mismanagement and be shielded from unions that seek to leverage arbitrary wage inflation that companies cannot afford. Flying under bankruptcy actually provides an unfair advantage over competitors. Bankrupt airlines continue to lose money without facing market consequences. Bankruptcy protection, therefore, retards growth in the industry and reduces competition in the long run.
Consolidation of mismanaged airlines makes the industry more efficient, better able to meet consumer demand, and--contrary to popular impression--increases competition. Burdened by excess flying capacity, the top five airlines need to be streamlined. If the top airlines were to consolidate, it would give other airlines opportunities to enter into new markets, providing consumers with more flying options. More flying options mean more competition and lower prices.
A U.S. Airways/Delta merger, considering their overlapping markets, would not leave consumers in the southeast with only one major airline as many are foolishly projecting. On the contrary, dozens of gates would open up, giving new airlines a shot at meeting the needs of consumers.
In fact, the possibility of gate vacancies is already stirring interest. Bloomberg News, citing remarks by Chief Executive Officer Gary Kelly, reports that Southwest Airlines Co., the biggest low-fare carrier in the country, would consider buying gates, planes, and other assets sold in a US Airways/Delta Air merger. Landing slots at New York's LaGuardia airport might be among the targets.
“We would be very interested in any assets that are divested,” Kelly said in an interview. The East Coast “is our least-developed region and where we are trying to grow and have had a lot of difficulty gaining access to markets.”
The Wall Street Journal reported that AirTran Inc. Chairman and Chief Executive Joe Leonard said he is also interested in acquiring airport gates opened by a US Airways/Delta merger. Leonard said discount carrier AirTran would consider buying abandoned shuttle operations as a way to gain access to gates at New York's LaGuardia International Airport and Washington's Reagan National Airport.
If the Delta merger fails, there is speculation that United Airlines might approach Delta with an offer of its own. Either Continental or American Airlines, in the industry realignment, might then court Northwest Airlines.
All of this merger talk is a promising sign. If consumers and shareholders are interested in good old-fashioned stewardship--translating into greater efficiency, more options, and lower prices--the news of consolidations should be welcomed. It's the market working as it should.