For most travelers, the impact of the Continental-United merger depends most on where they live and where they fly most often. The combined route network of the two airlines may benefit those who live near a large hub operated by one of the airlines or those who fly to one of those hubs frequently. The addition of United's route network gives Continental fliers a combined airline that is very strong in the North Central U.S., with hubs in Chicago and Denver, as well as a major presence along the West Coast and across the Pacific.
For United's customers, the new airline will have a much stronger presence in the New York market with Continental's enormous Newark hub. United's business travelers will also benefit from Continental's expansive route network to Europe and beyond from Newark as well as Continental's stronghold in Latin America. The combination of Continental's Newark hub and United's Washington Dulles Airport hub also gives the new airline a much greater presence in the Northeast.
For anyone who's ever been stuck at Chicago O'Hare or Houston Intercontinental Airport during inclement weather, the new airline will be able to re-route east-west traffic across the other hub if one is paralyzed by snow, ice, hurricanes, or thunderstorms – assuming there are open seats on flights transiting through the alternate hub.
Winners and losers
While many business travelers will appreciate a larger route network, those benefits may be offset by a reduction in service or routes that generally accompanies a merger. With only a handful of redundant city pairs, the greatest capacity cuts are likely to be implemented on hub-to-hub routes, like Chicago to New York, Chicago to Houston or Houston to Denver.
In addition to reducing capacity on redundant routes, mergers often leave airlines with too many hubs too close together. Downsizing or eliminating superfluous hubs is one way to cut costs. Smaller hubs or those located too near to others are most vulnerable. Continental's smallest hub in Cleveland, operating in the shadow of United's mega hub at Chicago O'Hare, is the most likely candidate for a decline in service, but other hubs may also lack immunity from service cuts.
With Continental's international hub at Newark sitting in the largest airline market in the nation, United's Dulles International Airport hub in Washington becomes a likely candidate for downsizing. Additionally, with giant hubs centrally located in Chicago and Houston, United's Denver hub becomes strategically less important.
Although Denver is a growing market, United faces substantial low cost competition from Southwest, which has expanded rapidly in Denver since entering that airport a couple of years ago. United is also challenged by a revitalized Frontier Airlines, now combined with Midwest Airlines under the Republic Airways umbrella. United's market share in Denver has already declined substantially since Southwest's arrival and it may be a lost cause to defend that hub in the end.
Business travelers located in smaller cities, who often have a choice of flying through any one of several hubs operated by different airlines to reach their ultimate destinations, may find themselves with fewer options as a result of mergers.
Fewer flights may mean longer wait or transit times. Decreased competition and fewer airline choices will likely drive higher airfares at least in the short term. In the longer term, other airlines – particularly low-cost carriers in search of lucrative routes — may step in to restore some lost capacity and thus bring airfares back down.
More mergers on the horizon?
While current Continental or United customers will be most affected by this merger, it is likely not the last one on the horizon. Doug Parker, CEO of US Airways, has been very vocal about US Airways' desire to find a merger partner in recent years and it is likely they will locate a partner soon.
In some ways the most logical partner for US Airways would be American Airlines. With the two most recent mergers, American Airlines has lost its lofty perch as the nation's No. 1 airline, and has now dropped to a distant third place behind its two greatest rivals (United and Delta). Should American feel the need to grow, combining with US Airways would complete the morphing of the big six into the bigger three and create three mega airlines of approximately the same size. But American may have other growth options.
American has had a long-standing code sharing agreement with Seattle-based Alaska Airlines and recently began a partnership with jetBlue to share passengers flying through New York's JFK Airport. Both of these airlines, though much smaller, are generally profitable and together could bring American up to the size of Delta and United. Until recently a merger between a major network airline like American and a low-cost carrier like jetBlue was unthinkable, but differences between the major network airlines and the low-cost carriers have narrowed significantly in recent years as the majors cut costs and airlines usually offer the same low fares.
If American is not interested in acquiring US Airways, a different suitor may also come from an unexpected place. The recent acquisition of Frontier and Midwest Airlines by regional carrier Republic Airways opens up some new possibilities for US Airways and other airlines. Regional airlines enjoyed prolonged prosperity in the past decade, but are now threatened by the ripple effect from recent capacity cuts and mergers.
Republic's acquisition of Frontier and Midwest to solidify its future is a game changer. Following this unprecedented move, it is entirely possible that Republic or another regional airline could make a bid for US Airways or another larger airline. In this current round of merger mania, every U.S. airline is now in play. It's difficult to say what the industry will look like when it all ends, but fewer airlines will most likely equate to fewer choices and higher airfares for business travelers.
No comments:
Post a Comment