The friendly skies are abuzz with airline merger talks, and the potential impact on Los Angeles could be tremendous creating both headaches and opportunities.
LAX would be faced with reshuffling airlines from one terminal to another, posing logistical nightmares for the already over-capacity facility, even as it proceeds with plans to undergo a major expansion.
Meanwhile, Boeing Co., L.A. County's largest private-sector employer, would see its number of clients shrink, with mixed consequences. That, in turn, could impact the hundreds of thousands of aerospace subcontracting jobs in L.A.
And Angelenos, who have watched air fares rise over the past few years, may well have to suffer further hikes due to fewer choices and higher prices.
"If these mergers go through, that will change the entire story of the industry," said Michael Boyd, president of Colorado-based aviation consulting firm Boyd Group. "If several big airlines merge, facilities needs at LAX will change. A lot of things will change."
Any impact on LAX of UAL Corp.'s proposed merger of its United Airlines with US Airways Group Inc. would by itself likely be limited. US Air's share of the passenger flight market at LAX was little more than 2 percent in 1999, far less than United's dominant 22.6 percent share. And US Air operates at only a few gates, so moving across the airport to where United operates would hardly be a chore.
But combine that with a potential merger between AMR Corp.'s American Airlines, Northwest Airlines Corp. and Delta Air Lines Inc., and LAX could easily become a hornet's nest of disruption.
American and Northwest each have sizable operations that are situated far apart from each other. In contrast, the terminals used by American and Delta are located next to each other, but because the carriers operate on many of the same routes, some consolidation would be inevitable.
"You're not going to need two passenger terminals" in the wake of a potential American-Delta merger, Boyd said. "Sooner or later, that's going to mean available space."
Not a problem, L.A. airport officials maintain. While all the moving around would cause some logistical problems, there is so much demand for space that any vacuum would quickly be filled. LAX is a major gateway to the Far East and Europe, and foreign carriers are continually clamoring for more gates.
"There'd be some headaches, but it's doable, and someone will always fill the void," said Michael DiGirolamo, director of airport operations for Los Angeles World Airports, which runs LAX. "We'd be moving around a couple of carriers, but we've been moving airlines around for a year with all the (frequent flier) alliances there have been."
Pluses, minuses for Boeing
The potential impact of a massive airline consolidation on Boeing would also be considerable, with both pluses and minuses. Already in a tight competition with Airbus Industrie for the large commercial airline market, Boeing would have fewer customers in a consolidated airline world. In turn, that would mean tighter margins at a time when pricing isn't all that great to begin with.
"If you have fewer airlines, the airlines have more pricing power," said Joe Nadol, an airline analyst with Donaldson, Lufkin & Jenrette in New York. "They are more efficient in general, since they can increase their load factor, and purchases could eventually slow down."
On the positive side, the surviving large domestic carriers are likely to be more loyal to Boeing than Airbus because much of their fleet is already made by Boeing. If American, a Boeing client, acquires Northwest, which has committed to Airbus for future purchases, Airbus would likely lose out.
Where it wouldn't have much impact at all is at Boeing's operations in Long Beach, where the company makes the 100-seat 717s, none of which have been purchased by United, US Air, American, Delta or Northwest.
Nevertheless, Boeing's overall economic health is significant for L.A.'s aerospace parts industry, which employs thousands of workers making aircraft subassembly, electronics, fabric, seats and engine casings. In an effort to boost its margins, Boeing has squeezed this sector already, and if push comes to shove, Boeing may try to squeeze some more.
"Our business is driven by how well Boeing is doing," said Bob Bishop, spokesman at Northrop Grumman Corp. in Century City, which did $733 million in business with Boeing in 1999. "That's what drives the impact (of mergers) on us."
But others see opportunity in the wake of a massive consolidation.
For example, an industry consolidation would be a boon to one of Boeing's largest customers, Century City-based International Lease Finance Corp., which buys large numbers of Boeing and Airbus planes and then leases them out to commercial airlines. The mergers would leave surviving airlines with heavy debt loads. As a result, airlines would likely opt to lease more planes, rather than buy them, so they could direct more cash flow toward paying down their merger-related debt.
Other beneficiaries could be foreign carriers, which are currently forbidden from flying U.S.-only routes. A Congress that voted to deregulate the domestic airline industry two decades ago may lift those restrictions in an effort to spur competition.
Then too, smaller regional airlines continue to crop up (and they account for the bulk of Boeing's 717 sales). With the demand for air travel at record highs, the number of people flying in and out of LAX will continue to grow, justifying the LAX expansion plans now on the board.
"Nature abhors a vacuum," said Jack Kyser, chief economist for the L.A. Economic Development Corp. "If there are mergers, some small operators who want to expand to L.A. will do so. And if you're going to Europe or Asia, you'll want to go through LAX. Even if you have fewer airlines, the demand for air travel is growing rapidly."
The most obvious and widespread negative impact of any major consolidation would be felt by the thousands of Angelenos who climb on airplanes every day. Fewer carriers means less competition, and that generally leads to higher prices and less consumer satisfaction. A merged American-Delta airline would likely make fewer trips from L.A. to Dallas or Chicago than the two carriers do separately. So travelers may find reason to view the current developments with dissatisfaction.
"It's not going to be Boeing or the aerospace workers who suffer long-term if there are mergers," said Jon Kutler, president of Quarterdeck Investment Partners, a Los Angeles-based aerospace investment firm. "It's going to be consumers."
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