The big era of consolidation that was predicted with the passage of the Airline Deregulation Act is finally taking place. Delta and Northwest have pulled off one of the smoothest corporate mergers—let alone airline mergers—of all time. Continental and United have a chance to do the same, though the process is just getting started. The latest is AirTran and Southwest, which no doubt sent shockwaves through the Delta headquarters in Atlanta. It should have anyway.
The regionals are getting in on the mix too, as Skywest has turned themselves into a quiet juggernaut with their acquisitions of ExpressJet and ASA. They are rumored to be very interested in part or all of Comair as well. Trans States, a much smaller carrier, bought Compass, and Pinnacle bought Mesaba, to go along with their Colgan operation. In some cases, pilot groups and operating certificates will be merged, and in others it won’t be.
What does all of this mean? For starters, it may bring a new level of stability to the airlines in the domestic arena. At the major level, only American, Alaska and USAir will be left of the legacy carriers, and while a merger amongst any of the three probably isn’t wise, it wouldn’t surprise me if it happens anyway. The only low-fare carriers after Southwest will be jetBlue and Virgin. It’s quite possible that the knot tying is not done. In the meantime, everyone has learned much from the disaster that was USAir and America West, which are still two separate airlines wasting huge sums of money because of problems between the unions and between the company and the unions.
At the regional level, American Eagle will be the largest behind Skywest, and after Eagle, there isn’t even a real race for third. Everyone else will be a two-bit player. That means that Skywest/ASA/ExpressJet will set the standards for costs and pay. It also means that they when the pilot shortage hits, Skywest will either be able to weather the storm, or they will be harder hit than anyone. Smaller carriers, where an opportunity for a fairly quick upgrade will be attractive, will attract pilots faster, if not for longer.
As for AirTran and SWA, it will be fascinating to see how the other majors respond–especially Delta–as SWA starts playing those “Bags Fly Free” commercials in ATL. Since SWA doesn’t have regional feed, they will not have a pilot hiring problem, unless you consider an onslaught of applications to be a problem (the stated hiring minimums will be a shadow of what the actual competitive minimums will be). The competition for domestic passengers has now gone to a new level, and as the majors struggle to compete with the mega-low cost carrier, the relatively inefficient smaller RJ’s may begin to fade away, especially if fuel prices spike again as expected.
This is just the beginning.