The Brancatelli File



November 16, 2006 -- There are dozens, perhaps hundreds, of legal, financial, competitive and operational reasons why US Airways should not, must not and almost certainly will not be able to pull off its "hostile merger" with Delta Air Lines.

Against that blizzard of reasoned and rational opposition, I can muster only one good argument for letting US Airways do its proposed Delta deal: The more often the arrogant and self-aggrandizing little boys who think up these idiotic mergers get their way, the faster they hasten the demise of the legacy carriers they claim they are trying to save.

And since I can't think of a better way to improve our lives on the road than to speed up the death of these aeronautic dinosaurs, I say let 'em merge. Let all of the remaining Big Six merge into a Big Red One for all I care. The sooner these fools and their offensive fare structures and crappy service patterns disappear, the faster that alternate carriers, who generally offer fairer, flatter pricing and reliable, predictable service, will inherit the earth.

I understand that some of you disagree with me and think that we still need legacy carriers. Fair enough. We've been debating that since 9/11 and that discussion can and will continue. I know that the upcoming merger battles of the no-longer-titans will consume gallons of ink and massive amounts of newsprint and, in the short term, will lead to higher fares, more service deterioration and more chaos at the airport. I wish you and I didn't have to listen to the mindless prattle of airline executives and the even more ludicrous commentary of the truly clueless people who claim to analyze the airline industry. And, boy, I wish we could avoid the network implosions and inconvenience these as-yet unknown mergers will surely cause.

But let there be no doubt or disagreement about what happens when legacy carriers merge. History is unambiguous: The more that the legacy carriers combine, the more their hold on the air-travel marketplace dissolves.

Need proof? Let's start at the beginning, the dawn of deregulation in 1978. The dozens of legacy airlines that have now been merged, purged, purchased or otherwise subsumed into today's Big Six were essentially 100 percent of the market. The only extant alternate carriers, Southwest and Alaska airlines, didn't even register on the depth charts. In fact, Southwest Airlines didn't fly a single route outside of Texas. Alaska Airlines served just one city, Seattle, outside of its home state. The two Hawaiian carriers, Hawaiian and Aloha, were strictly inter-island affairs.

A baker's dozen years later, the airlines that carried the DNA of today's Big Six controlled about 90 percent of the market. In the name of supposedly desperately needed industry consolidation, famous (or infamous) airlines such as Pan Am, Eastern, Piedmont, National, PSA, AirCal, Western, Frontier, Ozark and the amalgam eventually known as Republic took the pipe. Yet the big, consolidated and mega-merged carriers had ceded a ten spot of the market.

By 9/11, the old Big Seven--American, United, Delta, Northwest, Continental, TWA and US Airways--had been reduced by one. While United and US Airways were attempting the merger from hell, American had gobbled up TWA. But the Big Six had shed another 10 percent of market share.

In the five years since 9/11, the Big Six has continued to shrink, even after the merger of the twice-bankrupt US Airways and the one-time alternate airline known as America West. Now the Big Six are down to about 72 percent of the market, not counting the commuter carriers, which are overwhelmingly independent contractors.

So as they keep merging in the name of market discipline and industry consolidation, the Big Six keep shedding huge chunks of the U.S. skies. Southwest is now about 8.5 percent of the market. JetBlue Airways, just six years old, has nabbed 3 percent. AirTran Airways, just a few years older, is nearing 2 percent. Alaska now flies coast-to-coast and around the West and has another 2 percent. Frontier, Midwest, Spirit and the others are growing. One-time contract flyers such as Mesa are flying their own planes under their own names. The Hawaiian players are now factors in the transpacific market. Newbies such as Eos and Maxjet have shattered the notion that start-ups can't fly internationally.

Forgetting all of the nonsense that US Airways spewed this week after it made its unwanted and unsolicited $8 billion offer for bankrupt Delta, US Airways' supposed whiz kid, chief executive Doug Parker, nominated himself as boss of the fantasy merger. And he said he'd promptly slash about 10 percent of the combined carriers' capacity. Add that to the fact that American Airlines continues to shrink and United is largely constrained from growing internally and you have a clear outline of the future: The Big Six will continue to combine and then continue to contract.

Today, the day after the daft US Airways offer, Southwest announced it was expanding with 33 more nonstop flights. JetBlue is slowing down its growth plans to "only" about 20 percent next year. Frontier and AirTran this week announced a frequent flyer program alliance that will help them cross-pollinate traffic and continue to grow. Midwest has all but driven Northwest out of its hometown of Milwaukee and that should give it the breathing space it needs to grow elsewhere. The initial success of Maxjet and EOS will convince investors to throw start-up money at new carriers who want to further erode the overseas dominance of the Big Six.

Trust me when I tell you that nothing like a US Airways-Delta merger will ever happen--it is the dumbest, least practical and most problem-fraught of all the potential Big Six combos--but others surely will. United can't survive alone. Delta and Northwest, both still bankrupt, will eventually need to buddy up. As we now know, US Airways' bosses aren't interested in doing the hard work required to finish the 14-month old US Air-America West, so they'll continue to look for a partner. American and Continental, neither of which has had much luck with their earlier mergers, probably won't be able to ignore the other Big Six lemmings running themselves off the cliff. They'll eventually join in and claim they did it for defensive reasons.

Fine with me. The sooner these fools merge themselves into oblivion, the better we business travelers can concentrate on supporting airlines that offer fairer fare regimens and better, more consistent service.

Copyright 1993-2006 by Joe Brancatelli. All rights reserved.