NEW YORK (AP) - Merger mania has climbed sky high.
The nation's airlines are now buying each other at a rapid clip,
fulfilling predictions of an industry shakeout in which only a
handful of the strongest carriers is expected to survive.
The contraction of the industry, coming eight years after its
deregulation, began last summer when United Airlines agreed to buy
the Pacific routes of Pan American World Airways for $750 million.
Since then Dallas-based Southwest Airlines has bought Muse Air,
investor Carl Icahn took control of Trans World Airlines, People
Express bought Frontier, Piedmont acquired Empire Airlines and
Northwest agreed to buy Republic.
Then last week, Texas Air agreed to buy Eastern, which would
create the biggest U.S. airline operation. That was quickly followed
by TWA's offer to purchase Ozark Airlines.
More mergers are expected and observers question whether secondary
carriers such as Western, Pan Am and USAir will remain intact.
Western, sensing the threat, says it is weighing anti-takeover
The industry's current giants - United, American and Delta - are
aggressively using their own resources to remain dominant players by
building huge route networks across the country.
Such far-flung service, if operated efficiently, is seen as a key
to survival since it gives an airline a powerful marketing tool for
building customer loyalty. In the process, such huge airlines could
freeze out weaker competitors.
The major carriers, in turn, are forcing most other airlines,
especially those hobbling financially, to respond in kind.
""The prevailing strategy is that in order to attract passengers
you will have to be able to take them anywhere,'' said Marilyn K.
McKellin of the Value Line Investment Survey, a securities research
firm. And for many that has meant joining forces with a rival.
While the restructuring continues, the traveler is expected to
benefit. The move toward far-flung route systems reduces the need to
change airlines during a trip. And the fierce battle for customers
and the airlines' continuing push to cut costs also should keep
downward pressure on prices.
Even with fewer airlines the competitive environment ""would
probably prevent fares from rising too much,'' said Joel Wechsler,
owner of Federal Travel Service, a Boston travel agency.
Before 1979 the government decided which airlines flew where and
how much they charged. With deregulation, the carriers are free to
invade each other's regions, discount prices and otherwise elbow
their way to additional market share.
It took a few years, however, for the major airlines to learn to
effectively compete in deregulated skies. Burdened by their
regulated cost structures but forced to cut fares to match new
low-cost carriers such as People Express, the veteran airlines lost
hundreds of millions of dollars in the early 1980s. …