What follows the Delta-Northwest merger? United Airlines and Continental have been talking, despite Continental’s independent culture. Whether this deal goes down or not is heard to tell. But more mergers seem likely if not inevitable.
The forecast for airlines is gloomy and getting darker by the day. Network carriers in the U.S. are facing high costs for aircraft ownership, fuel, labor and maintenance. With rising fixed costs, no pricing power and negligible profit margins, reducing capacity to relieve pricing pressure seems to be mission imperative. But network carriers are reluctant to reduce their inventories much further.
Due to their low credit ratings, airlines can’t borrow money at reasonable rates to invest in more fuel efficient planes and more efficient facilities.
All this means that the industry will have to consolidate – out of sheer necessity – despite the thorny challenges of integrating large, people-intensive organizations and fragmented legacy systems.
Can consolidation fix the ailing economics of the airline industry?
It’s too early to tell, but it probably won’t be enough. In the end, new and innovative airline business models are needed to solve the industry’s deep, structural problems.
Subscribe to this blog's feed
Follow Me on Twitter
