Farecast Blog

By: David Pelter, VP of Pricing

As you likely have seen in the news lately, there has been an unprecedented amount of M&A proposals in the travel industry over the last few weeks. From decades old technology companies Sabre and Worldspan attracting big private equity dollars to all the permutations of various merger partners on the airline side, there’s no question that the travel space is attracting a white-hot focus.

Whether any airline mergers actually happen (or are allowed to happen), here are some thoughts on the three airline mergers in the news: US Airways + Delta, United + Continental, and AirTran + Midwest Airlines.

US Airways (US) + Delta (DL):

+Routes: Good fit: US strong in Northeast (PHL, LGA, DCA) and West (PHX). DL strong in Southeast (ATL), Northeast (JFK), Midwest (CVG), and West (SLC). Creates very powerful transatlantic airline and would challenge AA as the largest airline in the world.

+ Financial: Because DL is still in bankruptcy, timing is critically important as there is a ticking clock on the ability to shed major costs while in Chapter 11. If this one happens, it has to happen sooner rather than later.

+ Management: The current management team of US Airways are the same guys from America West who just acquired the old US Airways. While the complete of both brands isn’t fully complete, Wall Street nonetheless looks favorably on their achievements thus far.

+ Fleet: DL nearly all Boeing fleet while US has both Boeing and Airbus.

- Operational Synergies: DL, as a part of the SkyTeam Alliance, already has very deep relationships with both NW and CO. Integration of operations (hubs, policies, IT systems, frequent flyer, etc.) would be starting from scratch between US and DL.

- Management Support: To date, Delta management has expressed a firm desire to remain independent.

- Regulatory: Might be tough to get approval and may require shedding of some major assets.

- Company Culture: As they say in the South, “When you go to heaven, you connect through Atlanta.” Delta, historically and culturally, is woven into the fabric of the South. Any move that alters this DNA (i.e. HQ moved to PHX) could be greeted with friction among DL’s constituents.

United (UA) + Continental (CO):

+Routes: Great fit: UA strong in West (LAX, SFO, DEN), Midwest (ORD) and WAS (IAD). CO strong in NY (EWR), SW (IAH) and Latin America. Powerful coverage from a business traveler standpoint.

+Frequent Flyer: UA largest airline to Hawaii (= largest volume of frequent flyer tickets) and CO flies all over Europe from NY as well as to the Caribbean and Latin America.

+Fleet: UA nearly all Boeing fleet, CO all Boeing fleet.

- Regulatory: Might be tough to get approval and may require shedding of some major assets.

- Operational Synergies: Integration of operations (hubs, IT systems, policies, frequent flyer, etc.), which has been accomplished with Northwest and Delta via their SkyTeam Alliance, would largely be starting from scratch with UA.

AirTran (FL) + Midwest (YX):

+Routes: OK fit: AirTran strong in Southeast (ATL and MCO). Midwest strong in Milwaukee and Kansas City.

+Fleet: AirTran and Midwest are the two largest operators of the Boeing 717 (newer, limited production plane that has been discontinued by Boeing).

- Management/Philosophy: Midwest brand focus has been on the higher quality side (food, more leg room, etc.) whereas AirTran has largely operated like a no frills low cost airline (standard seat pitch, etc.).

- Operational Synergies: Integration of operations (policies, IT systems, frequent flyer, etc.) would be starting from scratch between AirTran and Midwest.

- Other: Local Milwaukee business community hyper supportive of Midwest Airlines. Any notion that the airline would leave/reduce its Milwaukee focus would be greeted with pretty intense scrutiny.