The Critical 'I'

Read. React. Repeat.

Tuesday, July 20, 2004

The evolution of the U.S. airline industry since 1978's deregulation has been fascinating. If the analysts and smaller carriers are right, it could be even more so: Predictions are for only two of the current six dominant, or "legacy", airlines to still be around five years from now.
Downsizing, merging with another large airline or folding could be inevitable for some legacy carriers, said Paul Biederman, who teaches about the airline industry at New York University.

"There will be one or two big ones left and then you will have medium-sized ones like Southwest and AirTran, and then the regional carriers," Biederman said. "It's going to happen by hook or by crook, either by voluntary merger or bankruptcy. The market is going to decide this, not Congress or the (Air Transportation) Stabilization Board."

Last month, the government signaled its desire to stay on the sidelines when the board denied bankrupt United Airlines Inc.'s bid for a $1.6 billion federal loan guarantee. The board, created in September 2001 to approve financial aid for the nation's airlines, said such assistance "is not a necessary part of maintaining a safe, efficient and viable commercial aviation system in the United States."

The major carriers are well aware that some of them may not survive.

Delta CEO Gerald Grinstein told a group of his flight attendants in May that he believes only two of the legacy carriers will remain after the next five years, according to a partial transcript of the meeting obtained by The Associated Press.

In an AP interview last month, United CEO Glenn Tilton, asked if he sees future consolidation among major airlines, acknowledged that the legacy carriers "recognize that the market is simply going to get more challenging and there isn't going to be any reprieve from the pressure."...

Dan Kasper, an airline consultant for LECG in Cambridge, Mass., said major carriers will need to improve customer service and change the way they are viewed by passengers.

"I am very comfortable that five years from now, there will be several large network carriers," Kasper said. "Whether the names on the board are United, American, Delta, Northwest, Continental and US Airways remains to be seen."