The blockbuster buyouts that would give American and United airlines dominance of domestic skies could hit travelers using Los Angeles International Airport with higher ticket prices, flight delays, fewer choices and service disruptions in the event of a labor dispute, according to some high-level travel industry analysts.
"If the deals are approved, there could be three major airlines serving Los Angeles that are having labor problems," said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp. "Delta is currently having labor troubles, which is having an affect on the industry."
Bill Maloney, executive vice president of the American Society of Travel Agents in Washington, said his organization is vehemently opposed to American Airlines' parent, AMR Corp., spending $1.7 billion to buy the bankrupt Trans World Airlines Inc., one-fifth of US Airways' assets, and a 49 percent stake in startup DC Air. That deal would smooth the way for United's parent, UAL Corp., to buy the rest of US Airways.
"Five years ago I could see these deals occurring for economic reasons," said John Kutler, president of Quarterdeck Investment Partners Inc. "Today, the industry has never been more profitable, even though there are some storm clouds on the horizon, including higher fuel prices and labor problems."
If approved, the deals would make American the world's second-largest airline, with 25 percent of the U.S. market. United would remain the world's largest airline with 26 percent, while Delta would remain third with about 15 percent of the U.S. market.
"This is an example of unchecked airline arrogance and blatant disregard for the principles of competition, but most importantly, it's bad for consumers," Maloney said. "The airlines are too big, too powerful and too self-serving already."
Kutler agreed, saying, "Some level of competition is good for the airline industry."
Maloney warned that any labor disputes could cause major disruptions for the 65 million passengers that pass through LAX each year.
Kyser pointed out, however, that there are several factors that would soften the blow of any work stoppage for Los Angeles.
"We have an escape here and that is America West, Alaska, Southwest and Continental airlines have a large presence in Los Angeles," he said. "In Chicago, which is a hub for American, or St. Louis, where TWA has a large presence, other airlines have less of a presence, which can create problems for passengers during a work stoppage."
Glenn Engel, an airline analyst with Goldman, Sachs & Co. in New York, predicted that any serious labor problems would force Congress to step in to keep planes flying.
"Politicians like to think they know the airline business because they fly home every weekend," he said. "If there were serious labor problems, you would see an angry public put pressure on Congress to act."
If Congress were to step in, it would send any disputes to binding arbitration, Engel predicted, rather than allow labor unions to strike at airports nationwide, including LAX.
The sale of TWA to American is subject to approval by the bankruptcy court in Wilmington, Del., and should take four to seven months to complete, according to Chris Kelly, a TWA spokeswoman.
The deal calls for American to pay $500 million in cash and assume $3 billion in TWA leases. TWA also is in the process of receiving 50 new Boeing Co. 717 aircraft, which are manufactured in Long Beach. Fifteen of the aircraft have been delivered and the airline has an option for 50 more.
"Those details will be worked out as part of the merger agreement," said John Dern, a spokesman with Boeing in Seattle. "The future of any of our programs, including the 717, is not dependent on any single customer."
American also has agreed to acquire TWA's gates and takeoff and landing slots at several airports. Kelly said the airline operates two gates in Terminal 3 at LAX and has a combined 28 arrivals and departures a day there.
American operates 128 flights a day out of LAX, occupies 12 gates in Terminal 4 and shares an additional nine gates in Terminal 3.
"We would negotiate with both airlines before any reduction or additional gates were assigned," said LAX spokesman Tom Winfrey. American will also acquire a maintenance facility at LAX.
To ensure competition on United/US Airways hub-to-hub routes, American has guaranteed that a number of routes, including Los Angeles-to-Philadelphia, would be served by at least two roundtrips a day for the next 10 years.
Despite the potential problems that a deal of this size creates, Kyser said, there is a 55 percent chance that the deals involving American, TWA, United, US Airways and DC Air would receive regulatory and bankruptcy court approval.
"I wouldn't be surprised if they were approved," he said. "But there could be a lot of conditions attached to them, including the sale of some assets, because five carriers are directly involved."
Kutler wasn't so sure.
"I don't see this round of mergers being approved in its current form," he said. "Whenever a major deal is announced, others follow close behind. This is more of a defense play than a bold move on their part. These deals will continue to snowball until someone says stop."
For reprint and licensing requests for this article, CLICK HERE.
Stories You May Also Be Interested In
- AIRLINES--Airline Mergers Hold Promise, Peril
- Southwest Looks for More Gates As It Moves Into Dominant Role
- LAX Caught In Holding Pattern
- AEROSPACE---Contracts Mean New Life for Boeing in Long Beach
- Passengers Leaving LAX For Burbank
- NORTHWEST --- Moguls Get Windfall on Airline Talks
- Facial Recognition Boarding Passes Start at LAX
- JetBlue Sees LAX as More Than Just a Hub Airport