industry analysis

1. A larger DL network would provide benefits and advantages to businesses fielding travelers in the U.S. and around the world.

2. Customer service could improve as airline employees see hope, and greater resources are available for investment in people, product and technology.

3. Marginally strong hubs could be rationalized and strengthened providing greater stability for airlines and communities.

4. A more efficient, larger DL could stand and effectively compete with LCCs instead of fleeing into increasingly risky international markets.

5. A larger, more competitive DL could begin to close the gap vis-à-vis international foreign carriers that are progressively marginalizing U.S. network carriers in distant markets.

6. The internationally recognized Delta name and strong brand awareness would replace a somewhat diminished US Airways name.

7. Higher yields would help most domestic LCCs and network airlines repair their balance sheets in advance of the next national economic downturn.

1. Corporations would pay more for air transportation services as the number of competitors is reduced and capacity is unilaterally removed by the new DL.

2. Some city-pair markets would likely see significant jumps in business travel prices as hubs are rationalized. The merger justification put forward by US that the marketplace is fragmented with no single airline commanding more than 20% national market share is irrelevant. In the airline industry, the relevant market to the customer is the city-pair market where shares can reach 100% and prices can be exorbitant.

3. Some communities would see reduced service (frequencies) to important U.S. business centers.

4. This merger proposal represents a game-changing move likely responded to by competitors with the attendant likely scenario that additional competitors would be eliminated. Unfortunately, the U.S. does not have a coherent national air transportation policy to inform regulators and antitrust officials. How this case would be decided would set a precedent for likely proposals from other competitors in the near future.

5. Labor has historically captured the vast majority of value created by airlines and this proposal would not address this systemic problem, and indeed, only increase labor’s leverage. Interest in pursuing modification of the Railroad Labor Act to level the playing field between labor and airline management is extremely unlikely at this time in Washington.

6. As capacity would come back into the system during the next couple of years, yields would decline at the same time labor would be seeking snapbacks in pay and benefits. Unable to generate adequate full-economic-cycle return levels on the cost of capital, network airlines would go back to the death spiral of near-constant restructurings and slow liquidations.

7. Notwithstanding US Airways’ recent and ongoing experience in merging two major airlines, history has not been kind to these transactions. In the 1980s, 16 of the 17 mergers / combinations did not result in incremental economic benefits to the acquirer. Labor integration and lost management time and attention can be costly issues, among others. A slowing economy in 2007, increasing pressure from labor and the expansion of the LCC segment could combine to frustrate the synergies projected in this merger proposal.