In this week’s depressing episode of the new reality show “Last Airline Flying”, the rumor mill is again cranking big time, spitting out the news that United and Continental are exploring a possible “combination” as is being reported today by Associated Press.
The story says this recent flurry of talks among airlines may signal “merger mania” within the struggling industry. And now analysts all over seem to be questioning whether consolidation is a good thing.
Here’s a sample of what's out there today:
The airline industry has been weakened in recent years by low-fare competition and soaring fuel prices. Many experts say the key to prosperity for airlines is to cut capacity -- the number of seats for sale -- in order to gain more leverage over fares. Airline mergers can result in capacity reductions where the routes and services of merging airlines overlap. Major carriers have managed to cut capacity this year and have implemented several lasting fare increases.This looks like the airlines are taking lessons from Big Oil…purposely decrease supply to force higher prices due to increased demand. I guess since we all keep paying three bucks for gas, the legacy airlines assume we’ll just go ahead and pay these increased fares too.
These swirling rumors and stories about airline consolidation has pumped up airline stocks – investors seem to like the prospect of a smaller and more competitive field. UAL Corp. rose 5.1% to $45.34 per share in early NASDAQ trading, while Continental spiked 5.2% to $45.09 per share on the NYSE.
This tells me the savvy investor thinks that once the dust settles and one huge mega-airline is left flying, they’ll be able to hose down passengers with higher fares, giving their profit margin a serious boost, further inflating stock prices. What crap.All this “merger mania” is making the public more friendly to the low cost carriers. Amen to that, brother…why fly Humongous Airways, when you can let Southwest or Jetblue get you there for what might eventually turn out to be about half the cost?